Required:

Provide qualitative analysis of each of the alternatives (this is pros/cons either use a table or bullet points for each alternative)

Chapter 7: Cost-Volume-Profit 7.1 SUP Rides Matthew, Thomas, and Michael Hahn are three brothers, all university students, who own SUP Rides, a small business that rents stand-up paddle (SUP) boards on the shores of Lake Huron in southern Ontario. Stand-up paddling is one of the fastest-growing water sports in the world. The sport began about 50 years ago when surfing instructors would stand on their boards to take pictures. Since then, the sport has taken off in popularity because it is relatively easy to learn, it provides physical benefits like improved strength and balance, and it provides mental benefits such as stress relief and relaxation. Customers are typically teenagers looking to experience the laid-back SUP lifestyle. SUP Rides also pro- motes water safety to its customers and employees. Some things, like the weather, are out of their control, but the Hahn brothers believe that having a positive, fun attitude on the beach will help them attract customers. Currently they have not spent any money on advertising and they are the only company renting SUP boards in the area. The brothers have been operating SUP Rides for the past two summers. The business operates for three months, from June 1 to August 31. They own four paddle boards, which they rent out for $25 per hour each. They estimate that on a monthly basis the boards are rented for a total of approximately 600 hours (4 boards x 30 days x 5 hours per day), bringing in monthly revenue of $15,000. SUP Rides hires a summer student, Nadja, who is paid $15 per hour for the 600 hours the paddle boards are rented. Also, for each hour a paddle board is rented, the business incurs $3 in supplies costs to wax and prepare the boards. SUP Rides incurs fixed costs for its three months of operations, including rent and salary. The business rents a beachside kiosk from the local municipality for three months for $1,500 per month and stores the boards and other equipment in the Hahn parents' basement for free the rest of the year. Michael is paid a salary of $1,000 per month for three months because he works full-time for the business in the summer. The other brothers, Matthew and Thomas, work full-time in the city and come up on weekends but are not involved in the business on a day-to-day basis. SUP Rides purchased four boards two years ago for $900 each. The boards are depreciated on a straight-line basis and are expected to last three years. While the brothers enjoy owning SUP Rides , they believe the business has the potential to earn more income. They are considering three independent options for next summer to try to boost the company's income and give them more money for school next year. Details for the three options are presented below. Option 1 The brothers could extend their hours of operation to take advantage of longer daylight hours in the sum- mer. They believe there is sufficient demand to rent SUP boards seven hours a day. There would be no change to their selling price or their variable costs per unit, but Michael would want an additional $400 in salary to work in the evenings in the summer. Also, Nadja may not be available to work the extra hours so they will need to hire another summer student to work the extra two hours a day. They are not sure who they will be able to hire and if that person will fit with SUP Rides culture. Option 2 The brothers believe many people are reluctant to rent the boards because they have never tried the sport. If they include a lesson in the first 15 minutes of the rental time, they will be able to increase their price to $40 per hour. They believe this will increase the hours the boards are rented to six hours per day (without lessons and the brothers agreed they would increase his monthly salary to $1,600 to recognize the extra having to operate in the evenings). Variable costs per unit would stay the same. Michael would provide the work in providing lessons to their customers. Michael is happy to do this as he is planning on applying to teachers' college soon. Many of their customers are teenagers and the teaching experience will look good on his application. Option 3 customers to their location on the beach and they would be able to increase the number of hours the boards are rented. They plan on spending $1,000 per month on advertising and promotion (including flyers, post ers, and a website with basic information about SUP boards). Michael estimates this will allow them to rent the boards eight hours per day (assuming no change to the sales price, variable costs per unit, and other fixed costs). The other brothers are not convinced and think it is a lot of money to spend on advertising. The brothers are not sure which option will result in higher monthly income and which is best for their company, or if they should keep things the way they are and be happy with their current income. They are also not sure about some of their estimates. For example, in Option 2, customers may not be willing to pay an extra $15 for a 15-minute lesson, especially if it is part of their hour of renting the boards. Maybe $35 would be more realistic initially, and they could always increase the price in the future if they did see a big increase in demand. Case issue m The case issue in the text report is selecting the right alternative that will create the most income for SUP Rides. The brothers believe the business has what it takes to increase income and survive long term. To do this, they will decide on one of three alternatives: extend operating hours and in doing so hire more staff, include lessons for beginner level customers, or through advertising and promotion. By selecting the most beneficial alternative and focusing on the key success factors of the business the brothers have the potential to generate higher income. Key success factors One of the key success factors that SUP Rides focuses on is strategy. Their strategic focus is ensuring they and their employee create a positive and fun experience through their own positive attitudes. This approach attracts customers and ensures the customer a positive experience that offers the benefits of stress relief and relaxation. This will help to generate more customers through word of mouth and beach bystanders observing the way they operate. The operational focus is providing the SUP boarding experience in a way for the customers to reap the health benefits. The focus on water safety is another important focus of operation that leads towards their success. Maintaining workplace safety for employees and customers ensures the ability to operate continuously. Alternatives There are four alternatives to consider that could increase income, three of which are outlined in the report. The three alternatives in the report are increasing operating hours to take advantage of longer daylight hours, including a lesson in the rental package, and focus on advertising and promotion. Alternative to operate for another 2 hours a day enables the owners to take advantage of the longer daylight hours. This alternative means increased salary costs of $400 and hiring a part time employee. The second alternative is considered to expand their customer base. The brother acknowledges that some people who have never tried the sport could be intimidating. Including a lesson as part of the rental package will add to their customer base. This alternative would see an increase in the hourly rental price and the only cost would be an increase in salary for the brother that operates the company full time. The third alternative is to generate the increased income through advertising and promotion. The brothers will use flyers, posters, and a website. They feel this alternative will allow them to increase their operating hours, but the extra cost of advertising is a deterrent to choosing this alternative