FOREST SERVICE STl'MPAGE APPRAISALS 711 



ACCURATE LOGGING COSTS 



It has been demonstrated that logging costs can be determined more 

 accurately than a cruiser can estimate the amount of timber. In other 

 words, the percentage of variation between actual and estimated results 

 has been less in logging than in cruising. 



If a logging chance is carefully examined by an experienced, capable, 

 and thoroughly qualified logging engineer, the actual costs of operation 

 should not vary from the estimate more than 4 per cent to 10 per cent, 

 with an average of not more than 7 per cent, assuming that the opera- 

 tion is directed by a logger of average efficiency, and that no unusual 

 weather or labor conditions are encountered which were not considered 

 by the appraiser. Actual costs from a number of jobs in this region 

 are within 4 per cent of the estimates. 



There are certain fundamental principles which determine stumpage 

 values. There are five primary factors which are fully considered in 

 the determination of stumpage values for all large Forest Service sales. 

 These factors are quality and quantity of timber, logging cost, manu- 

 facturing cost, and the market value of the finished product. The ap- 

 praisal work is done by experienced, capable lumbermen and logging 

 engineers. The appraisals are made upon the basis that the operators 

 are entitled to a margin to cover the risks involved and a reasonable 

 profit on the estimated costs of operation or on the estimated average 

 annual profit-bearing investment. 



TWO METHODS 



There are two methods employed in arriving at stumpage values. 

 These are known as the "overturn" and the "investment" methods. 

 The overturn method is generally used in small sales where the oper- 

 ating costs can be easily estimated and where the investment is very 

 small in comparison with current operating costs. This method con- 

 sists of reckoning profit as a certain percentage of the total operating 

 cost and depreciation which combined represent the "overturn." 



The application of the investment method is as follows: The average 

 annual amount of money employed in the operation, including operat- 

 ing capital and fixed investments, is determined. A specified percentage 

 of the average annual profit-bearing investment gives an annual sum 

 which must be set aside as the profit margin. This sum divided by the 

 yearly cut gives the profit per thousand feet. 



From 15 per cent to 25 per cent on the logging investment and 10 



