Fence Company Ltd. (FC) was incorporated in March 2015, and is owned equally by Robert and Morris Wood. The company constructs residential wood fences.

FC's first year was a difficult one. It is now late March 2016, and the Wood brothers are making plans to improve FC's performance. Having decided that they needed outside advice, they asked you, CPA, 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 on the information and comments provided by Robert and Morris Wood during the meeting.

The owners project that at a price of $19 a linear foot, FC will have demand to construct 60,000 linear feet 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 an average team consisting of three people could build a 100-linear-foot fence jan eight-hour day.

• The average labour cost last year was $12.50 per hour with benefits costing $2.50 per hour. Labour costs are expected to increase 10% in 2016. Last year there was little control over the amount of wood used on projects; the owners want to change this situation.
• The brothers recognize that fence building is not a year-round activity and are willing to cover any cash deficiency as long as there are prospects of profitability. The owners need to take out at least $50,000 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 $36,000 a year (benefits included in this amount) 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 $1,500 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. Other fixed expenses related to the truck rental, including insurance, are $4,500 per year.
• 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, unless the job sites are part of a multiple house order.
• The company spent $13,000 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 ear were approximately $6 per linear foot for wood and $1 for nails and stain.

The standard selling price last year was $18 per linear foot. Robert Wood thinks that they should try for $19 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 $18 if forced to do so in order not to lose the sale. They are considering offering the same 4% discount for any orders in April as this worked well last year. They may also offer a 10% discount on group orders for fences for four or more houses.

According to the owners, a good incentive for their salesperson is crucial to increased sales.

Last year, they paid the salesperson 5% of gross revenue for a basic one-house order for a fence of about 100 linear feet. For a two or three-house order they paid 7.5%. 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 be paying $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.

Draft a report to the Wood brothers that present your analysis of the issues and your preliminary recommendations. You have write CPA report about the issues and analysis for the recommendation based on the above information.