Take Home Question 2

John Plomly has operated Cedar Star Restorations for several years in Kitchener, Ontario, a business that was started by his father in 1981. The company restores residential buildings with wood exteriors, including log cabins built with either Ontario or British Columbia cedar logs. The company operates seasonally through the warm months, keeping his crews busy who are guaranteed a 40-hour work week (regardless of hours worked), Monday to Friday, from May to September (operating for 110 working days per year). Customers refuse to give up the use of their yards on summer weekends and, therefore, always demand that the work be scheduled for weekdays.

While vacationing and visiting at a friends cottage during the past weekend, Johns friend mentioned that his cedar log cottage is in desperate need of restoration after several years of neglect. His friend also mentioned that he knows of two other people in the area who also have log homes and who have been unable to find a service provider in the area to do cleaning and restoration work. The buildings are all too large for the owners to take on the project alone.

Having returned from his weekend trip, John is wondering whether he should employ his companys services to his friend and neighbours three hours away in cottage country. He knows his staff is eager to earn as much as possible during the summer months and would appreciate a weekend overtime opportunity to work at a remote location at double their regular rate. In addition, since taking over the business from his father, he has been considering expanding his service into this vacation area, as people are not always at their cottages and jobs can be scheduled on weekends. Johns friend indicated that he was certain that all three jobs would be awarded if John offered to do the work for $2,000 per building during the upcoming long weekend.

The following are the annual crew wages and fixed costs of Cedar Star Restorations:

Property taxes	$5,000
Equipment/vehicle depreciation	12,500
Equipment maintenance	3,200
Worksite supervisor salary	50,000
Crew annual wages*	98,560
Insurance	4,000

*based on a regular hourly rate of $16/hour

Based on Johns knowledge of the size and condition of his friends cottage and the description of the other two buildings, he is sure each building can be washed and stained in a day with each member of his three-person crew working 10 hours per day over three days of the long weekend. Overtime pay will be required as the employees are working beyond their regular hours and double time is required on the statutory holiday (Monday). Given that John had already planned to be in the area on the weekend that the jobs would be completed, the worksite supervisor would not be needed. John would stay at his friends cottage and occasionally visit the job site during the weekend to drive the employees to and from their motel. He also plans to take the three employees up to the site with him in his minivan.

There are various other costs directly associated with each restoration job. John has estimated that each building will require 2.5 litres of their specially mixed cleaning solution at $32 per litre. The three employees will sleep at a nearby motel that is expected to cost $85 per person for each of the three nights of their stay. Power for the pressure washing equipment will be supplied by the owners. Meals for the crew are expected to be $75 per day per person.

Required:

Should John agree to complete these three jobs offered by his friend?

If Cedar Star Restorations does expand operations into this new area, should John price other jobs of similar size at $2,000?