Michaels Custom Woodworking Ltd.
Additional Information

Company Update

Although 2001 was a good year financially for MCW, the implemented changes put a lot of pressure on Brook, David, and Lynn. Both David and Lynn experienced a great deal of stress from all of the driving, and the considerable amount of time that David spent in Louisiana added to the strain on him. When the production lines were first implemented, Brook had to spend much more time involved with day-to-day production than he had planned. As a result, although he built a few made-to-order cabinets, he was unable to test the custom market properly.
2002
In early 2002, Brook extended the contract with BKP for a further 12 months, agreeing to provide quarterly shipments of 1,800 boxes (7,200 annually). At the same time, Brook decided to hire a local assembler in order to resolve the assembly issue, and to invest in a second trailer in order to facilitate the delivery process. He was able to acquire a previously owned trailer in good condition for $25,000. The plan was for Lynn and David to drive the boxes to Louisiana non-stop, drop off a full trailer, and bring back an empty one. If it was convenient, they would pick up a load to bring back, but they were not to spend a lot of time trying to find one. Quality control would have to be performed on the assembled product. This arrangement worked as well as could be expected in spite of its limitations. During 2002, Brook was able to produce and market 10 custom-made dining room cabinets, and word was spreading about his work. He also installed a few kitchens, including countertops, doors, drawers, hardware, and finishing. For the cabinets, he charged the cost of materials plus 15% and added $50 per hour for his labour. For the kitchens, he charged the cost of materials plus $3,000 for his labour.
2003
Because of the general malaise in the U.S. economy in late 2002 and 2003, BKP reduced its 2003 order to 3,600 boxes to be delivered in May and July. This resulted in some unused capacity in the first half of the year and the volume was insufficient to justify retaining an assembler. As a result, the previous assembling model was temporarily restored. Brook knew that he would have to re-evaluate the relationship with BKP to determine whether or not it should be continued. Although the BKP order had decreased, and the U.S. economy was supposedly in a slump, Brook decided to maintain box production at the current level. There continued to be a lot of interest in MCW’s products in both the U.S. and Canada, and there was a steady demand from his established, local customers. In fact, MCW was unable to fill CCC’s maximum orders during the late summer. Brook himself was able to complete the same number of custom-made cabinets as in 2002 and install one additional kitchen.

Sample – CMA Entrance Examination – Part 2 2 CMA Canada As Brook looked forward to 2004, he considered whether MCW should continue to be a relatively small operation or take some major steps to expand significantly.
2004
In 2004, two major events occurred that changed the parameters of business at MCW. In January, MCW had to address a potentially bad debt of substantial size and, in June, it was victimized by a fire that largely destroyed the shop. In January, David told Brook that they were going to be short of funds for the month-end payroll. This by itself was not a significant problem, since MCW was in a good financial position with no short-term bank debt, but Brook was taken by surprise. MCW was operating at effective capacity and, although the receivables had been getting somewhat higher, Brook had considered this to be a good thing. David: “I think we’re going to have to borrow about $15,000 to meet payroll.” Brook: “Why?.....I mean, what’s the problem?” David: “Well, we haven’t been paid for our last two shipments to BKP.” Brook: “You mean back to May?” David: “Yes….well, we have received some money since then but it only caught them up to what they owed from before that.” Brook: “Why am I just finding this out now?” David: “I didn’t think it was a real problem. Roger Belle told me that they were expecting to have a good last quarter and that he’d get caught up with a large payment in December and the rest by the end of January. Now he says he needs until the end of March.” Brook: “Well, David, I’m not impressed…I hate surprises, particularly bad ones. In future, please keep me informed of any possible problems as soon as you know about them. Tell Roger that we can’t make any more shipments until we’re fully paid. By the way, you might also tell him that, if he wants us to continue to supply him, we are not going to do the assembling. I’ll call the bank. I’m sure they won’t mind taking some of our money.” The June fire was more of an issue. Fortunately, MCW carried replacement cost insurance on all its equipment, as well as income protection insurance. It also carried insurance on its inventory. Most of the finished goods inventory was stored in the two trailers, which were parked at a sufficient distance from the shop that they were not damaged. The shop itself was owned by Brook and Lynn and was also insured for its replacement cost. The timing of the fire was especially problematic. It was peak season for MCW, and promises had been made to some of its customers for product delivery. Brook decided to rent space in Town on a month-to-month basis in order to continue production while deciding how to proceed. Fortunately, MCW was able to collect the funds owing from BKP. This cash allowed Brook to replace his raw materials and assorted supplies while the insurance claim was resolved. In addition, MCW agreed, in principle, to supply BKP with another 3,600 unassembled boxes in the second half of 2004 on a cash-on-delivery basis. MCW agreed to charge US$2.00 less per box. Brook was very unsure of what to do with the business. He liked making furniture and had found, so far, that installing and finishing kitchens was not the complicated process he had tried to avoid in the early years. From his perspective, his experience in these areas, although very limited, had been a successful trial.