26 



HARDWOOD RECORD 



Januarjr 2S. liiKt 



of npininii nni 



-.tic y.i-', I'lit iiirrc IK Btill littlo uniformity 

 'iipn or nrniutiliintii nitli rouarti to rcrtain 



III wliirh 



„ -.iliility. 



M tJbc nccoiimnrt mum l>wir iu niimi tiiiit the ri^iuirniicul* for <li(Tor 

 enl mills vsry, iiml nlno that every 1uui)ktiii:iii Ims Iiik own— (;<'iiprnlly 

 TB17 definite — iciena on the nubjoet, Tlio necounlnnt must carefully 

 study the neeil.i of each individual mill n- ■' .'•■•■t bimwlf to condi- 

 tions. 



\ u in useful, I'veii tlioiiuli n is iii<'iim|deto; it tenchci" 



..,!... ukIi it may not teacli all that it Hliould ; it» effiricnry 



deponti^ v.-ry largely upon the rc1ii'<Iii1i> of aooounls behind it. In 

 order to fill it.x field of u!>ofulno.4S it uiunt cover every detail of ox- 

 lienso. for all I'ost is an expense of one sort or nnuthor. To arrive at 

 ihe co!<t of lumber f. o. b., some sort of a cost system is imperative; 

 ■thernise you are doing business on a false jirinciplc. 



A lumber cost should reflect the final result--* in such difl"ercnt de- 

 partmental o])erations ns stumpnge, logging, manufacturing, 84ile8, 

 -hipping ami overhead. ~ 



If the charges to thesi^ general accounts have been properly made 

 the final results should be fairly accurate. 



I sulimitte<l a year ago a set of forms to be used in connection 

 with a lumber cost system. This time I have simjily prepared a com- 

 l>osit« cost sheet showing the cost of nmnufacturing, selling and 

 "hipping lumber. A copy of this statement follows: 



l-.fM l.l-MBER MANUFAOTfRERS- AS.SOCIATION LUMBER COST. 

 Month 101 .. . 



.Vccount. 

 Mk-i;Iiik- lliOS Scale) 



Thin Month. 

 Per 

 Feet. Amt. M Ft. 



1 000 000 



lioooinoo »"i."ooo.o6 $ '2.60 



1 Haulinc l.ooo.coo 3..-»n.r,n 3..'>0 



1,000,000 ."ioo.no .no 



l.oon.oun .-lOO.oo .50 



1.000.000 i.coo.oo 1.00 



i,ooo.o<io noo.oo ..in 



,,,., „i» 1.000.000 2.'>0.00 .25 



Last Month. Tear. 



Per Per 



Amt. M Ft. Amt. M Ft. 



Total Coat of LoeglnR. .1.000,000 $ S.2.'i0.00 « S.2.'i 



Mnfctr. (B M. Scale) — 1.100.000 



I.oim — :!» At...vi. I.IOO.OOO S 8.2.10.00 f T.TiO 



.-;.iwlnk- .m.l PlllnR I.IOO.OOII 2.200.00 2 OO 



1. .ir- ,1 M .intcnance. 1.100.000 82.".0O .-.-■ 



I.IOO.COO .l.'iO.OO ..'.0 



1,1(10.000 .',.-,0.00 ..M 



^fB I.IOO.OOO 3.-50.00 .-,0 



Total Coat nf Mnfctr. I.IOO.OOO $12,923.00 $11.75 



.^.llinc (Total Sales! — l.SOO.OOO 



I Expenae L.lOO.oOO $ 



L.IOO.OOO 



■ tin i.noo.ooo 



G-ii'jra: Expense 1,500.000 



Overhead Charges 1,600,000 



Total SclUnK ExpenBe.l,r.00.0O0 $ 1.275.00 $ 



ShIp'B (Ttl. Shpmis.) — 1 .000.0-10 



Insppctlon I.OOO.noo $ 



Dn- Kiln Expense IftO.f-OO 



PlanlnK Mill Expense.. . 2ihi.iK)0 

 HaulHKe anil LoaulnR. . .l.oon.orn 



.sortInK and Replling 2.-i.000 



General Exptnse 1.000,000 



Ov.Theod Charges 1.000,000 



Total .Shipping Expense.l. 000.000 $ l,087,.5O $ l.iO ... 



Tiital Cost nf Lumter 



F. O. B. Cars $13.70 



First, and most essential, is the log cost. It is in the woods that 

 the money is made or lost; for that reason you must have a scheme 

 of accounts tliat will illustrate the results of the operation in the 

 minutest detail. Every expense in this department must be brought 

 into the cost, as it can be taken care of nowhere else. The expense 

 of laying and taking up log spurs, depreciation and overhead charges 

 must all be pro\-ided for in this cost. 



Stumpagc — This represents stumpage on own timber, and which 

 should be charged into cost at a value that will extinguish the timber 

 investment, plus taxes, interest and all other carrying charges within 

 a given period. A great many lumbermen take up stumpage at the 

 price they paid for the timber. This creates a false showing, Stump- 

 age should be taken up at the price it would cost to replace it were 

 it to be exhausted today. The original cost of stumpage will double 

 in less than ten years, as interest must be figured on a compound basis 

 to be accurate. 



After the logs are delivered at the mill it is then a manufacturing 

 proposition, and this includes all expense incidental to manufacturing 

 the log into lumber and placing in pile. This is another department 



where deprociation nn.i ..1. n.. ...i . h..if - ■■! • >- ■» nature miiat b* fully 

 taken care of, 



Doprtvintiiiii is nn impairment of Iho value of an UKM-t by reamiii 

 of near or tear, accident, time, or aimilar i-nuw, ami pnivide* for Ihe 

 constantly diminishing life of difTerent portioiiM of the |ilnnl a rCM-rxc 

 to reproduce the piniil. hcpro-intion on a luinniill operation should 

 be flinired on the entire investiiicnt, exclusive of timber holding* ; the 

 charge depending entirely u|H>n the value of the plant and the amount 

 of timber behind it, but obvioiitly it niuit be large enough to have 

 taken care of tlio in\-ct<tment by the time the operation ia flniahe<l. 

 Pepreciation rhould bo charged direct to dopartmenta instead of 

 leaving it in the general overhead. 



Insurance may comprise fire, Iwiler. liability and fidelity inaurance. 

 all of which must be charged direct to departments aflfected. I.iabil 

 ity insuraiico is a direi-t charge on lal>or. 



The next stop is to sell and ship the liimlH-r you have produced. 

 This includes the expense of selling with all its incidental cx|>cnsc; 

 taking down lunilwr, inspection, loading, repiling and regrnding of 

 Iay-out*i, and any dry kiln or planing iiiill cjtpense, as thai is a process 

 of getting the lumtier ready for •ihiinnent and not a nianufailuriiii; 

 expense. 



Fixed charges, or overhead, such as depreciation, taxes, insurance, 

 general expense, etc., are ascertained, and ns a rule distrilmted under 

 special instructions. It is one thing to determine what are fixed 

 charges and quite another to arrange for their equitable distribu- 

 tion. The aim is to have each unit of product bear its due and proper 

 jiroportion of the total. 



Taxes on timber holdings should be charged to land anil tinilier 

 account, on lumber stocks to your trading account, and on plant to 

 mill and its different departments. 



General expense comprises all expense that cannot be charged 

 direct, such as traveling exiMjnses, telegraph and telephone, station- 

 ery, postage and other office expense, insurance, depreciation and 

 taxes on office building, etc. 



Repairs and Maintenance: Each department must take up all of 

 the cost of repairs and maintenance that can be specifically charged 

 to it. Ordinary ex|icnditures for repaiis and maintenance are in- 

 tended to maiiilaiii the jilant iu a conditicm of efficiency, and do not 

 generally increase the original value of the plant or add to the term 

 of its established life. In other words, ordinary repairs and re- 

 newals are for the purpose of keeping the plant in nn operating 

 condition and as such cannot be capitalized or considered a» nn offset, 

 to depreciation. 



This completes the items of expense f, o. b cars, I have worked 

 out only a monthly cost on the form you have before you, but this 

 form is so prepared that the montlily cost can be compared with 

 the cost for the previous month and for the year. To the cost for 

 the year should be added idle expense, deferred charges and cost ad 

 justmcnt items that have accumulated and which have not been tak 

 en up direct in any monthly cost in order tliat the yearly cost may be 

 complete and include every item which should be included in the final 

 cost of product. 



There is little excuse for charging interest on plant and working 

 capital costs. One goes into business to make money, and by charging 

 up interest to cost one is simply anticipating profits which arc purely 

 speculative. Certainly there is no .iustification for including interest 

 in inventories. 



I have possilily wandered away from the subject somewhat, and may 

 not have made the kind of speech I was expected to. If I have not 

 I trust there are others here who will bring the discussion into its 

 proper channel. 



In conclusion, I want to repeat one thing I said to you a year ago 

 and that is that this .association can do no better work for its members 

 than to perfect a uniform accounting system with standardized forms 

 and accounts w-hich should be flexible enough to meet the requirements 

 of all hardwood mills. 



In the vast variety of belt conditions there is ample room for 

 many forms of lacing. One may not arbitrarily say of any one form, 

 "This is the best." 



