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CRU Computer Rental: Case Study

The minimum rental rate for short-term rentals (4 weeks) needed to avoid losses is $38.50 according to the analysis. Management should focus on increasing longer-term (8 and 12 week) rentals which are more profitable. Three scenarios are presented showing that targeting more longer-term rentals increases revenue, lowers costs from less inventory, and improves profits compared to the current focus on more short-term rentals.

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Vijay Koushal
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74 views

CRU Computer Rental: Case Study

The minimum rental rate for short-term rentals (4 weeks) needed to avoid losses is $38.50 according to the analysis. Management should focus on increasing longer-term (8 and 12 week) rentals which are more profitable. Three scenarios are presented showing that targeting more longer-term rentals increases revenue, lowers costs from less inventory, and improves profits compared to the current focus on more short-term rentals.

Uploaded by

Vijay Koushal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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CRU Computer Rental

CASE STUDY

Group 15

BISWAJIT NAIK EPGP-13A-031


CHANDAN KUMAR ROY EPGP-13A-032
MANOJKUMAR J EPGP-13A-066
MURALI M EPGP-13A-072
VIJAY KOUSHAL ATYAM EPGP-13A-122
What should be the minimum rental rate to avoid losses for short
term rentals

Total units = 16967, On rent = 8000

Utilisation = 47.2%

Profitability:

• Revenue : 4800 x 30 + 3200 x35= 2,56,000

• Cost per week

• Depreciation cost = 108763

• Other Cost = 158382

• Profit = 256000-108763-158382 = -11145

• Minimum short term rental to avoid loss

• 3200* x = 11145

• X= 3.5

• Min rental on short term = 38.5$

PAGE 1
The minimum rental of short term to avoid losses is 38.5$

What Should Management do to Improve the Profitability?


 The sales drive done for Short term rental (4 Weeks) in 1997 has resulted in loss as the
revenue cycle is very minimal when compared to cost incurring cycle, the discount provided
for weekly rental added heap of loss to the company.
 When compared with the rental period offerings that CRU has, we could infer from the
below that net revenue generated is highest for the 12-week rental followed by 8-Week and
then 4-week rental.

Shipping Receving Re-config Repair cost Depriciation Rent / Week Revenue / 1 Cycle Profit / 1 Cycle
4 25 25 4 60.75 27.78 40 160 17.47
4 ( Sales Drive) 25 25 4 60.75 27.78 35 140 -2.53
8 25 25 4 60.75 55.56 30 240 69.69
 12
With inference from25 above25 4
CRU Rentals 60.75 target
should 83.33to increase
25 their 8300
weeks & 12-week101.92

rental customer base as it creates more revenue than the 4 Week cycle which is reflected
from the sales drive done for 4-week cycle where loss is incurred.
 CRU Should aim for increasing their revenue cycle and reduce the cost cycle to increase
profit for the company.

Below are few scenarios that we have considered based on the demand of market (Exhibit 2
of Case Study) to improve profitability of Company:

In the below Scenarios we have considered:

1) Net Profit = Revenue – Cost Incurred

2)Maintain a 2-week buffer of status 20 machines

3) Revenue = Rental per week * No of Machines [ $ 40 for 4 Week , $30 for 8 Week , $ 25 for
12 week]

4) Cost Incurred = Depreciation + Shipping + Receiving + Repair + Re-Config

Scenario 1:

PAGE 2
In this scenario we have considered that CRU targets to capture of 60 % 4-Week Market, 30%
of 8-Week Market & 10 % of 12-Week Market.

Net Profit:

Scenario 1
Revenue (USD) Depreciation (USD) Other Cost (USD) Profit (USD)
248000 94755 142498.8 10746.2

Scenario 2:

In this scenario we have considered that CRU targets to capture of 40% 4-Week Market, 40%
of 8-Week Market & 20 % of 12-Week Market.

Net Profit:

Scenario 2
Revenue Dep Cost Profit
245142.8571 91074.41026 126705.6 27362.84

Scenario 3:

PAGE 3
In this scenario we have considered that CRU targets to capture of 20% 4-Week Market, 50%
of 8-Week Market & 20 % of 12-Week Market.

Net Profit:

Scenario 3
Revenue Dep Cost Profit
226578.9474 83849.56731 107511 35218.38

Inference:

 In the above three scenarios we can note that as the number of rentals increase for 12-
week and 8- Week period the net profit, utilization is increasing.
 In addition to that the number of computers owned by CRU rental is reduced with
increase in long term rental sales.

Suggestions:

 Increase a greater number of contracts with corporate accounts and consulting firms to
increase in productivity.
 Reduce the number of inventory machines.
 Increase the revenue cycle when compared to cost cycle.
 Add shipping costs and repair costs to customers who are opting for short term rental
options.

PAGE 4

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