Orbea (Portuguese Version, Brazil)

  • Reference: C-773-PB

  • Year: 2002

  • Number of pages: 7

  • Geographic Setting: España

  • Publication Date: Dec 11, 2012

  • Fecha de edición: May 13, 2014

  • Source: IESE (España)

  • Type of Document: Case

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In 2002, Orbea was considering manufacturing store brand bicycles for a large-scale retailer. This case is designed to help students learn to look at the effects of a business decision on a company's fixed costs as a part of their cost-benefit analyses. Specifically, the case can be used to look at how to carry out a differential cost analysis of the increase in the company's current asset financing needs.

Learning Objective

The class can be divided into three parts: -First, the impact of the decision can be analyzed in terms of contribution margin. This analysis will give rise to a discussion about whether manpower is differential. -Once the analysis has been completed in terms of variable costs, the affects of the decision on fixed costs (fixed with respect to small changes in volume) should be introduced. In particular, the necessary increase in current assets to cover the order should be analyzed and the resulting increase in financial costs. -Once the cost analyses are done, students can analyze demand, specifically the impact on the industry. This analysis will bring up serious doubts about the desirability of the deal. -At the end of the class, the students will realize that the real critical decision is not about whether to accept the contract, but how to manage the uncertain future of the business in general. Other strategies can be discussed along with what Orbea finally decided to do.