Fence Company Ltd. (FC) was incorporated in March 2011, and is equally owned by Robert and Morris Wood. The company constructs residential wood fences. 

FC’s first year was a difficult one. It is now late March 2012, and the Wood brothers are making plans to improve FC’s performance. Having decided that they need outside advice, they asked you to meet with them. 

At the meeting, you asked the brothers to describe their operations and to highlight their major concerns. The following paragraphs are your notes from the meeting. 

FC lost business last year because it could not meet its promised installation dates during the peak period. The owners consider, however, that their biggest problem last year was caused by the need to repair fences. They guarantee their work, and they had to go back and change broken boards and clean up work sites, which cost them money and did nothing for their reputation.

The owners project that FC will construct 50,000 linear metres of fence this year. To achieve this target, they think that one work team will be needed during the 12 weeks of April, October, and November, and three teams during the 20 weeks from May through September. Their projection assumes an eight-hour day and a regular five-day week. Last year they found that a good work team consisting of three people could build a 100-linear-metre fence in an eight-hour day. 

The average labour cost including benefits last year was $5 per hour. Labour and materials costs are expected to increase 10 percent in 2012. Last year there was little control over the amount of wood used on projects; the owners want to change this situation. 

The average labour cost including benefits last year was $5 per hour. Labour and materials costs are expected to increase 10 percent in 2012. Last year there was little control over the amount of wood used on projects; the owners want to change this situation. 

The owners need to take out at least $15,000 each per year. In addition, they intend to hire a full-time receptionist to start on April 1 and to employ this person year-round. They expect that the salary will be about $12,000 a year but think that the cost will be worth it to ensure continuity and maintain the company’s image. 

A truck will have to be rented for each work team, at $500 per month. Robert Wood thinks that they should keep two of the trucks from December to March for snow removal. He and Morris could do the work and lay off everyone except the receptionist. 

FC will also need to rent a machine for $600 a month to dig holes. In addition, it will cost approximately $120 to move the machine from one work site to another. 

The company spent $8,000 on gas and maintenance and $1,200 on telephone last year. The owners expect to hold the line on these costs this year. 

Morris Wood estimates that their costs last year were approximately $6 per linear metre for wood and $1 for nails and stain. 

The standard selling price last year was $11 per linear metre. Robert Wood thinks that they should try for $13 this year. FC’s salesperson complained last year because he could not discount the price. The brothers think that it might be a good idea to allow the salesperson to go down to $12 if forced to do so in order not to lose the sale. They are considering offering a special in April—perhaps 4 percent off—to get things rolling. They may also offer a 10 percent discount on group orders for fences for four or more houses. This discount offer worked well last year. 

According to the owners, a good incentive for their salesperson is crucial to increased sales. Last year, they paid the salesperson 5 percent of gross revenue for a basic one-house order for a fence of about 100 linear metres. For a two- or three-house order, they paid 6 percent and for a four-house order, which is about 400 linear metres, they paid 8 percent. They believe that the incentive was responsible for the fact that FC had a lot of two-house orders last year. 

Starting in April, FC will pay $2,500 a month to rent a warehouse for storing wood and equipment for the year. The landlord wants a security deposit of one month’s rent. The company also has to buy new tools that cost at least $3,000, since the work teams either stole or broke all the tools used last year. 

Required 

Draft a report to the Wood brothers that presents your analysis of the issues and your recommendations.