28 



HARDWOOD RECORD 



least 2,000 milss from the southern boundary of the ancient ice sheet. 

 To work up north 2,000 miles would require 600,000 years, according 

 to Fliche. 



Such a period of time seems out of the question. It is the opinion 

 of most geologists that the ice was still in the Lake states at least 

 as late as 20,000 years ago, and probably 10,000 years. If that is 

 true, the glaciated region has been timbered within that time, and 

 the French forester's estimated rate of advance of trees is not one- 

 tenth rapid enough. 



There may not be much profit in theorizing on the subject, but it 

 is wholly worth while to ascertain how rapidly trees will advance into 

 new areas. The practicability of reforestation depends upon that 

 in many instances. If the rate is as slow as Fliehe claims, it is useless 

 to i\ait for nature to plant trees in barren regions. Fifty thousand 



years, or the fiftieth part of it, is too long to wait for pines to come 

 back in Michigan. Fortun.itely, it is known that nature works more 

 speedily in many parts of this country. Pines in Virginia and North 

 Carolina, for instance, have overrun large tracts of land at a rate 

 nearer a mile a year than seventeen feet a year. Trees of various 

 species have advanced considerable distances into open plains from 

 Minnesota to Oklahoma since the region was settled and grass 

 fires ceased to burn. In portions of Texas mesquite has advanced into 

 the opefl plain thirty or forty miles in half a century. It is not im- 

 probable that some tree seeds are carried by wind, water, birds, or 

 quadrupeds five, fifty, and five hundred miles from the parent tree. 

 Trees thus springing up and forming outposts far ahead of the slow 

 advancing forest line would become new centers from which the 

 species would spread in all directions. 



"'C>g«^rglyiOK;^^■.\y^^x,?^l»^>'j^:,-^^■i^^^:;wi^^ 



In view of the well recognized necessity of figuring costs in every 

 department of the hardwood lumber business, it is interesting to note 

 how far apart members of the trade frequently are regarding points 

 that ought to be matters of common practice. 



The feature of overhead expense is one which seems to give more 

 trouble than anything else. There seems to be little agreement as to 

 what factors ought to be included in it, and also as to what it should 

 be applied to. The result is that when lumbermen come together for 

 the purpose of comparing notes on wlaat is it costing them to conduct 

 various departments of their business, they are amazed at the apparent 

 discrepancies, which are. as a matter of fact, merely the indications 

 cf varying methods used in arriving at the result. 



In determining what should be considered as part of the overhead 

 expense, the general principle should be followed of using it only 

 for expenses which are so "general in their nature that they cannot 

 be charged against a specific department of the business. Thus it 

 would be folly to consider the cost of teams as overhead, because they 

 are used directly in handling lumber in the yard, and should be con- 

 sidered as part of the handling expenses. On the other hand, some 

 houses consider sales expenses, including the traveling men's salaries 

 and expenses, as well as advertising, part of the overhead. Logically, 

 selling should be considered apart from general administrative ex- 

 penses, and set aside as a separate department. That is the only way 

 in which the efficiency of th.at department can be determined. Unless 

 the advertising is used with the definite idea of getting results, it may 

 be considered as overhead: but the lumberman who makes proper use 

 of his publicity can regard it as a direct sales agent and charge the 

 item accordingly. 



There is general agreement about including under the overhead divi- 

 sion such items as rents, insurance, taxes, oflSee and administrative 

 expenses, telephones, telegraph, postage, stationery, etc. All super- 

 visory work applied in handling the lumber should be considered in the 

 yard account, so tliat every bit of expense which may be considered 

 p>roductive will not lie tacked on to overhead. In other words, don 't 

 use the term merely to conceal items which ought to be brought out 

 into the light of day and assigned to some specific department. 



Two important charges, which are prominent in the accounts of 

 most largo corporations, and rightly so, are strangely missing from 

 the statements of many able lumbermen. They are interest on in- 

 vestment and depreciation. It is difficult to understand why lumber- 

 men should not desire to include every legitimate charge in figuring 

 out the results of their business, because to do otherwise is to deceive 

 one's self; and to omit to make a charge for either of the items 

 noted is to overlook an important factor. 



Interest on investment is sometimes disputed on the ground that 

 the earnings of the business are supposed to take the place of it, and 

 that if such a charge is to be made, the business is forced to carry 

 :i double burden. On the other hand, it must be remembered that 

 business involves a large element of speculation; the man who in- 

 vrs's his money in a commercial enterprise is undertaking a gamble, 



in which myriad factors and conditions are to play a part in 

 determining the result. His own energy, ability and integrity have 

 a lot to do with it, of course, and he is not at the mercy of the turn 

 of a card or the roll of the dice; but nevertheless chance has a great 

 deal to do with the result. 



That being so, why should the business be compared on an even 

 basis with one in which the returns are fixed, and about which there 

 is no question? It is possible to buy absolutely gilt-edged securities 

 at present at prices that will yield better than six per cent. There 

 is not .the slightest question about the interest on these bonds or 

 preferred stocks being paid because the intrinsic values back of 

 them are ample security of the principal, no matter how poor busi- 

 ness might become. An investor with money to put out could buy 

 these bonds and sit at his leisure, earning his six per cent without 

 any fears for his principal. The same could not be said of the 

 lumberman who invested an equal amount in hardwoods. He would 

 do a lot of perspiring and lose a good deal of sleep figuring out 

 ways to keep his capital unimpaired and his money turning over 

 profitably. 



This condition is one which is ample justification for the use of an 

 interest on investment charge. It is simply taking note of the fact 

 that the money could have earned interest without risk; what other 

 earnings are made are developed by the business as a business, and 

 apart from the \alue of the use of the money. 



If a business produced but six per cent net, without having figured 

 an interest on investment charge, then it would be in efl"ect a failure, 

 because the money would have produced that much return without 

 any risk; and those in charge of it might reasonably be accused of 

 being like the servant who wrapped his talent in a napkin and buried 

 it; but six per cent over and above the interest on investment charge 

 IS a fair, though far from an extravagant return, and has justified 

 the existence of the enterprise. 



There may be some question about the interest account, but there 

 should be none whatever about using a depreciation charge. In a 

 concern which has a large investment in machinery, which is obviously 

 subject to rapid depreciation and must be replaced at intervals, there 

 is scarcely an opportunity to avoid using the charge; but eveii here 

 enough is not made of it. In the business where the depreciation 

 charge is taken note of along the right lines, the charge is a charge 

 actually, and not merely for bookkeeping purposes; and a correct 

 percentage of the business done, figiired as part of the overhead, is 

 set aside as a sinking fund to be u.sed for the purpose for which it 

 is logically suited, the replacement of equipment as it wears out. 



To do otherwise is to admit that the depreciation charge was not 

 needed, or to pay dividends out of money which was not part of the 

 net earnings. If the value of the plant has really gone down — as it 

 assuredly has — the company has a smaller value in its holdings than 

 before; and it should be kept to the former amount by the use of 

 the sinking fund; if it becomes larger than is needed for replace- 

 ments, then the charge can be reduced or part of the money placed in 



