26 



HARDWOOD RECORD 



May 10, 1921 



Getting Accurate Costs 



By L. D. Gasteiger. 



In .uiciciil .■iml medieval times Mariners liail for their guide the 

 stars in the heavens. In cloudy weather and in storms with the 

 stars obscured from their view, they were often lost for days, and 

 in many instances their ships were dashed upon the rocks and 

 destroyed. When the compass came into general use the Mariner 

 could refer to this instrument in sunshine and in rain and know 

 that his ship was plowing through the waves in its proper course, 

 and ill absolute safety. 



In business if we are to judge by the alarming number of 

 failures, the pilots must have used the stars for their guide, for 

 had they constructed their business upon a sound economical 

 basis, failure would not have overtaken so many. The pilot of 

 business is in the same position as the Mariner at sea. If the pilot 

 docs not have an accurate system of costs to guide him he will most 

 surely be dashed upon the rocks and ruined absolutely, as will tlio 

 Mariner who sails the seas without a compass. 



So the system of costs is to business what the compass is to a 

 seaman. Without them, both will eventually be lost. It is so 

 utterly foolish for men to proceed in business without a guide, and 

 as an accurate cost system is the only true guide I often wonder 

 how so many hold on as long as they do. 



All good business men, all successful men, know that an accurate 

 cost accounting system is a prerequisite to any successful business 

 undertaking, and why men will persist in sailing the sea of busi- 

 ness without their compass when they know that sooner or later 

 they will be without hope andT;heir dreams of a successful business 

 career forever blighted, is more than mystery to me. Upon an 

 accurate system of costs all business must be builded. No business 

 can succeed for any great length of time without an accurate 

 record of costs. I will admit, however, that during the high tide 

 of the lumber business, when prices soared beyond all reason, costs 

 were not such a vital element during that period for it was almost 

 impossible for an industry to get more money in their lumber than 

 they could get out of it. But we have passed through the period 

 of inflation and depression is upon us, let us hope temporarily. 

 To those who kept an accurate account of costs there is some hope, 

 but to those who failed to keep an accurate account, the chances 

 are they are drifting slowly but surely upon the rocks. If you 

 know exactly what your lumber now on your yards has cost you you 

 know what that lumber must sell for in order to break even, or 

 make a profit, therefore, an accurate cost accounting system is 

 indispensable in determining the question of sales. Costs are the 

 mirrors of our selling prices and all men know that sale values 

 are based on costs, and the two are inseparable in so far as the 

 management of a successful business enterprise is concerned. In 

 the matter of costs and sales the two go hand-in-hand, and as com- 

 petition has been very keen in our business during late years the 

 pilot of an industry who watches his costs closely and keeps an 

 accurate record is most likely to survive. In all human probability 

 the chief cause of the lumber business becoming demoralized, and 

 ruinous competition set up, is due in a large measure to those 

 engaged in our business who will not give their costs first con- 

 sideration. If costs are disregarded our business will always 

 remain unsatisfactory. A great many in our business and especially 

 the circular mill people manufacture lumber with only a faint idea 

 of what it has cost them, and in a great many cases in disposing 

 of their lumber the item of cost has not be'en considered and they 

 sell their product below cost, thereby bringing ruination u]ion 



•Editou's Kote : This address was delivered l)y Mr. Oasteiger at the 

 spriiifl mcetintj of the Appalachian IiOgging Cangreis in Cincinnati. O., 

 on April 30. Mr. Oastriger is vice-president and vianager of llic Pitts- 

 burgh Lumher Company, Pittsburgh, Pa. 



themselves and dissatisfaction to those in our business who are 

 moving along on a sound and sane basis. If we could teach those 

 in our business the absolute necessity of keeping an accurate 

 account of costs, one of our great troubles would be eliminated and 

 our business in general would be much more satisfactory. To 

 those who disregard the item of costs, failure is the inevitable 

 result, and the sooner these irresponsibles are driven from business 

 by their own nearsighted policy the better off the lumber industry 

 will be. Too much stress cannot be laid upon this item of costs. 

 It is the bed rock, the very foundation of business and every 

 transaction, no matter how unimportant it may seem is related to 

 co.sts in a minor or important degree. You cannot do a single 

 thing without affecting this item of costs. 



The Fundamental Items. 



Getting accurate costs is a big problem and it is not my inten- 

 tion to cover the entire field for to do so I would have to make 

 a careful study of the various plants of the country and take into 

 consideration certain items of expense which would be applicable 

 to some plants and not to others; however, for the purpose of 

 laying a foundation I shall briefly outline the fundamental items 

 necessary to be considered and from these main items subdivisions 

 may be made to take care of expense items which cannot be 

 charged directly, but which must be charged in order to present 

 a correct cost sheet. 



First: The amount invested in your timber lands must be given 

 first consideration, and the probable sales value of lumber must 

 be figured and a reasonable average considered in order to form 

 a sound basis from which to work. Lumber prices rise and fall like 

 any other commodity and a general average is easily obtained by 

 consulting statistics covering a period of say ten years. If your 

 stumpage costs are high it may be impossible to operate in such 

 an economical manner so as to produce a profit. Practically all 

 lumber operations are confronted with like difficulties, and one 

 not experienced in the business should make a thorough investiga- 

 tion of all the items making up the basic elements of costs before 

 entering the field, therefore, as a first consideration, great impor- 

 tance is attached to stumpage values, for as a rule it forms one of 

 the principal items of costs. 



Second: Plant facilities which consist of sawmill, boiler room, 

 planing mill, machine shop, yard, homes, office building, store 

 room, etc., is the second important item to be considered. The 

 cost of construction of all plant facilities will naturally depend 

 upon the location of a plant, and the supply of labor. And in 

 figuring on the size and kind of plant facilities the length of time 

 required to cut the boundary must be considered. After a plant 

 is constructed the cost of the necessary repairs and repair parts 

 go into your monthly cost statement, but your initial investment 

 miist be taken care of by monthly or annual depreciation charges 

 which, of course, greatly affects your costs. This item of deprecia- 

 tion, which is considered an overhead expense, is very important 

 and affects costs in the same manner as direct labor charges. 

 Depreciation charges should be made in poor and in good seasons 

 for in the wind-up you are ahead or behind in proportion to the 

 record you have kept of your depreciation charges. 



Third: Railroad construction and railroad maintenance must 

 be given very careful consideration. The cost of building a rail- 

 road depends upon the character of the country through which 

 the road is to be built. In a mountainous country, where heavy 

 cuts and fills are to be made and many streams to be bridged the 

 cost is very great, whereas in a level country the laying of ties 

 and steel is about all that is necessary unless the ground should 

 be soft, and in that event provision must be made for a firm road- 



