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AKS Case Analysis
AKS Case Analysis
Case Analysis
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Introduction Draft
Recreation Facilities Limited (RFL) operates several sport complexes and beach
properties in the East African region. AKS is one of the largest facilities operated by RFL,
contains several buildings and offers different activities and services at this location. One of
those buildings called “C” has table tennis room with three tables, two squash courts and the
space given to the Senior Citizen group (SCG). It has come to the attention of the GM that
utilization of squash court is low. The following is a proposal prepared to the senior management
at RFL for consideration to continue operating squash courts instead of renting out the space.
This proposal includes a detailed qualitative and quantitative analysis and a final
recommendation.
Advantages/Pros Draft
Advantages for either accepting or denying the proposal at hand, are considered. If AKS
is to accept the proposal the organization will have the added income of rent from the YG at
$2,500 per month. AKS will also be able to avoid the relevant cost of an hourly worker, and
vending machine costs. Note cost allocation of utilities are irrelevant to this decision because
they are unavoidable common costs for building C regardless of this decision.
Alternatively, AKS could reject the proposal which is advantageous due to opportunity
cost. Loss of memberships, profit sharing with the squash coach, revenue from the vending
machine, and advertising revenues total (insert relevant figure $) as per (Appendix 1). Avoidable
costs related to rejecting the proposal include maintenance cost remaining consistent.
Disadvantages/Cons
There are disadvantages for either decision, whether AKS rents the space to the YG or
not. Beginning with the YG’s proposal itself, there are two main disadvantages that management
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must be aware of. The first is the impact to membership. Should the YG’s proposal be accepted,
and the squash courts are altered, we should be aware that some members of AKS come to only
use the squash courts and may rescind their membership if the facility is no longer available. It is
anticipated that there are around fifteen members who exclusively use the courts, and another
five non-members also use the court in which we anticipate two of them would not return. The
second main disadvantage to accepting the YG’s proposal is the impact of the modifications and
costs incurred. There is a cost to modifying the squash courts for the youth group, which can be
written off over two years and the YG itself will partially invest in. Additionally, we must
consider the severance costs of the part-time employee who will no longer be needed to oversee
the courts. Lastly, it is anticipated that the maintenance costs for running Building C will
If we do not accept the YG’s proposal and we keep the squash courts, there are also
disadvantages to consider. The first disadvantage is that the usage of the squash courts
themselves is relatively low. Current numbers show about twenty members and non-members
using the squash courts. There is a coach who uses the space and shares some of their revenue
with AKS, but it is not very material. The second consideration is the cost of keeping the squash
courts in place, instead of looking at potential new revenue sources gained. With the YG, they
have offered to invest in the renovations needed, and in addition to paying rent they will also
cover some of the costs of their utilities. The squash courts occupy 30% of space in Building C,
yet only 5% in terms of square feet compared to the entire complex. As an activity, squash does
not occupy a large portion of usage of AKS’ facilities and membership, and thus, the opportunity
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Based on the Advantages and Disadvantages outlined above, our recommendation for
AKS is to decline YG’s proposal. In Appendix 1, we observe that the dollar amount effect on Net
Income if AKS accepts the proposal is -$4,386 (includes taxes). As mentioned in the Advantages
section, the opportunity cost of rejecting the proposal is substantial, as AKS would lose cash
flow from loss of memberships, profit sharing with the squash coach, vending machine
commission, and revenues generated from two advertisers, totalling to X. Accepting the proposal
would have increased AKS’s costs in the short- and long-term, as there are modification costs to
renovate the squash courts, severance costs for part-time employees, and increased maintenance
In our analysis, there are two issues to consider when declining YG’s proposal. First, the
squash courts, which occupy 30% of Building C, have relatively low usage. Also, the revenues
gained from the squash coach utilizing the space is not substantial. To mitigate this issue, our
recommendation is to increase marketing and awareness efforts to bring in double the number of
members. A strategy that could be implemented by AKS is to repurpose one of the five
advertisers to promote the squash courts. In the short-term, $6,000 will be lost in advertising
revenue; however, costs can be recouped by additional annual memberships gained, with a
potential increase in cash flow by $22,000. Second, the cost of maintaining the squash courts is a
consideration for AKS, as the total maintenance costs are X. However, current maintenance costs
are relatively low in comparison to remodelling the squash courts, and therefore, is a non-issue to
AKS.
Conclusion (Naresh)
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