40 



HARDWOOD RECORD 



January 25. 1917 



ging department would be credited with the logs on the basis of 

 this scale at the market price, and a profit or loss shown thereon. 

 By using the same scale, the production of lumber can be closely 

 estimated by means of the overrun or shortage, depending on 

 the kind and size of logs manufactured. We would have to 

 base the estimate for shortage or overrun on the past experience 

 of the operation. We believe this would be sufficient for all 

 practical purposes, and would eliminate the necessity of meas- 

 uring the lumber at the slip in order to determine the daily out- 

 put. The manufacturing expense based on the production of lum- 

 ber should be divided substantially as follows: Labor, Saws, Re- 

 pairs to mill machinery. Repairs to buildings, Repairs to boilers 

 and engines, Power house expense. Slip, Oils and waste, Depre- 

 ciation, Overhead. 



We believe it is advisable to keep a separate account for power 

 house operation because, in many instances, power is delivered to 

 other departments which departments should be charged with the 

 power on the basis of the amount used; and again, there are those, 

 no doubt, who furnish water and light to the municipalities in 

 which their plant is located, and it would be manifestly improper 

 to charge this expense to the cost of the lumber produced. We 

 believe the expenses of the filing room, including the wages of 

 the filers and helpers, and the cost of new saws, should be kept 

 separate and a reserve account created which would be credited 

 with a fixed amount per thousand feet on the lumber produced 

 and the amount charged into the cost. This would prevent the 

 charging into any particular month 's cost of an excessive amount 

 for filing or new saw expenses, and proper adjustment could be 

 made at the end of the fiscal year. 



Kilns 



Next would come the kiln expenses, which we would divide on 

 the basis of the total amount of lumber produced at the plant as 

 follows: Labor, Repairs and maintenance, Oils and waste. Depre- 

 ciation, Overhead. 



The expense of delivering the green lumber from the mill to 

 the kiln should be charged to the kiln, and also all expenses enter- 

 ing into the lumber coming out of the kiln. The expense of load- 

 ing the lumber should be charged to the shipping department. 

 But in case the lumber is removed from the kiln and piled, all such 

 expense should be charged to yarding. 



Yakding 



Next would come the yard expense, which we would divide as 

 follows: Trucks and stacking, Repairs and maintenance of trams 

 and roadways. Repairs and maintenance of foundations. Repairs 

 and maintenance of lumber buggies. Stacking strips. Depreciation, 

 Overhead. 



There would not be charged under this head any part of the 

 expense of shipping except the repairs and maintenance of trams 

 and roadways, which should be distributed equally between this 

 account and the shipping account. 



Shipping 



Next would come the shipping expense based on the number of 

 feet actually shipped. This we would divide as follows: Inspec- 

 tion and loading, Repiling and regrading, Repairs and maintenance 

 of trams and roadways, Superintendence, Depreciation, Overhead. 



, Sales 



The expense of the sales department, we think, should be based 

 on the amount of lumber produced, rather than on the amount of 

 the sales or shipments. From an accounting standpoint it is advis- 

 able to create a reserve account and a fixed amount per thousand 

 feet, as demonstrated by past experience, should be credited on 

 this account and the cost account charged with the amount. This 

 would keep the charge to costs uniform, as the department must be 

 maintained and the lumber eventually sold, and it is only fair that 

 the expenses be charged to the cost of production sufficient to 

 cover this ultimate expense. The subdivision of accounts for this 

 department, we think, should be as follows: Salaries, Office sup- 

 plies, Association dues and assessments. Postage, Telegraph and 

 telephone, Traveling, Advertising, Sundries. 



General Overhead 



This brings us down to general or overhead expenses, which 

 should be based on the amount of lumber produced, and which, 

 we think, should be divided as follows: Salaries of officers, super- 

 intendents and office; Postage, Office supplies. Office expenses. Tele- 

 graph and telephone, Legal expenses. Sundries. 



The plant overhead, such as fire, boiler and liability insurance, 

 and taxes, should be charged direct to the particular department, 

 but insurance on office or administrative buildings must be charged 

 to general overhead. 



In other words, expenses of every kind connected with the busi- 

 ness, none of which can be directly located as belonging to a 

 proper department, should be charged to general overhead. These 

 expenses, while general, are a part of the cost of manufacturing 



lumber, so they cannot reach the department direct; hence, a 

 method must be devised for them to reach the cost sheet in an 

 indirect manner, but the method at the same time should be so 

 planned that each department will receive its fair proportion of 

 the total. This distribution we recommend be done on the basis 

 of the productive labor charged to each department. This consti- 

 tutes all of the elements of cost excepting the item of interest. 



The question of interest on investment to be charged in the 

 costs is one on which accountants differ. The Federal Trade Com- 

 mission has issued a pamphlet the title of which is "Fundamentals 

 of a Cost System for Manufacturers," and on page 14 the follow- 

 ing statement with reference to interest appears: "Cost account- 

 ants and industrial engineers for comparative and statistical pur- 

 poses almost unanimously advocate including interest in cost, and 

 so far as interest is included in cost for comparative or statistical 

 purposes, it serves a useful purpose." While the commission has 

 taken no definite stand with respect to the theory of interest, it 

 realizes that for comparative or statistical purposes inclusion of 

 interest is advisable. We would, therefore, recommend that Inter- 

 est on the capital invested, say at six per cent, be taken into 

 account and considered as a part of the cost of manufacture; but 

 in preparing profit and loss statements the interest so charged 

 should be returned to income under the specific caption ' ' Interest 

 on Investments. ' ' 



Depreciation 



Inasmuch as depreciation is an impairment of the value of an 

 asset by reason of wear and tear, we recommend that depreciation 

 be charged direct in every case. In other words, in the log cost 

 depreciation on log wagons and teams used in hauling should be 

 charged to hauling. Depreciation of loaders and skidders should 

 be charged to loading and skidding. Depreciation on rail should 

 be charged to log spurs. Depreciation on locomotives and cars 

 should be charged to tramroad operation, etc. 



Depreciation on sawmill should be charged to manufacturing; 

 on machine shop to machine shop department; on planing mill to 

 planing mill department; and on kilns and yards to the respective 

 departments. The depreciation on sawmill operations should be 

 figured on the investment in each department, the charge depend- 

 ing entirely upon the value of the plant and the amount of timber 

 behind it. It must be large enough, however, to take care of the 

 plant investment by the time the operation is finished. In no case 

 should depreciation on plant or plant facilities be charged in the 

 general overhead. 



Planing Mill 



This brings us down to the planing mill, if a planing mill is 

 owned and operated. Where stock is taken to the planing mill and 

 no further work than surfacing and resawing is done, a suffi- 

 cient handling in the accounting department would be to charge 

 the "lumber shipments" account with an established figure per 

 thousand feet for so working and crediting a corresponding ac-^ 

 count in the planing mill department, that is, an account which 

 might be termed "surfacing and resawing." We think this method 

 is advisable because it would then be unnecessai^ for the planing 

 mill to stand any differences in the grade of lumber because of this 

 operation and because sufficient margin of profit is not added to 

 the price to justify the planing mill as a separate department to 

 stand any deductions for off-grade. If the lumber is furnished to 

 the planing mill for the purpose of producing or finishing into a 

 different product, such as ceiling, siding, etc., the {Waning mill 

 .should be charged direct with the material at its market value 

 in the rough, and the particular kind of lumber used should be 

 credited in the same manner as if a shipment in the rough had 

 actually been made. When the product is actually shipped, the 

 "planing mill product account" would then be credited with the 

 amount of the shipment. The subdivision of costs at the planing 

 mill would be diviiled as follows, which are practically the same 

 as the sawmill: Labor, Building repairs. Machinery repairs, Saws, 

 bits, and knives; Belts and belting, Oils and waste. Depreciation, 

 Insurance, Sundries. 



It should also be charged with a proportion of the "general over- 

 head and office expenses" as well as a proportion of the "sales 

 department" expenses. 



There are instances in the manufacture of lumber at the planing 

 mill where it is not feasible to keep costs for statistical purposes 

 by treating the output as a whole. A special cost report on such 

 stock should be made on a blank provided for that purpose and 

 turned into the office where proper record is made of the cost and 

 proceeds of all special orders. 



In order that the material to be used at the planing mill and 

 reworked into planing mill products can be easily arrived at, a 

 form of requisition to be given by the planing mill foreman or 

 superintendent should be made in duplicate on the superintendent 

 of shipping, the original of which is turned into the office with the 

 t.illy of the lumber furnished and the duplicate retained bv the 

 >planing mill foreman for his information or for the information of 

 the office should the original be lost. 



