68o Forestry Quarterly. 



product can be profitably handled as long as the other operating 

 costs, exclusive of railroad construction cost, are less than the 

 f. o. b. mill value, and in an actual operation will certainly not 

 be left in the woods. The railroad construction cost or, in fact, 

 any absolutely fixed charge is in reality disregarded in deter- 

 mining the merchantability of a single species, because if there 

 is enough valuable timber on the tract under consideration to more 

 than cover the railroad and other fixed costs, any species that will 

 yield a profit over other operating costs will be taken out even if it 

 cannot bear an equal share per M. of the entire cost. More- 

 over, every additional carload of timber that is handled at a 

 I profit in reality helps to pay for the railroad. It is evident, then, 

 that the distribution of construction cost on a per thousand basis 

 is not logical and does not fit actual conditions where there is a 

 considerable variation in the value of the species to be handled. 

 It does not, moreover, give equitable stumpage values, as it 

 unduly reduces the stumpage values of inferior species in favor 

 of the more valuable, and may even indicate that a certain species 

 has no stumpage value at all when as a matter of fact it can be 

 (handled at a profit. 



These features are illustrated in an ideal example. The as- 

 sumptions in this example follow closely, but in a simplified form, 

 the conditions of a case met with in actual practice by the writers. 

 The stumpage values are worked out by two different formulae, 

 which will be briefly explained. 



( 1 ) What we may call the direct percentage formula is based 

 on the principle of crediting to the stumpage an assumed per- 

 centage (P) of the gross profit (the difference between the f. o. b. 

 mill value of the final product (v) and the total operating cost 

 (c-fr) and allowing the remainder to cover the operator's profit 

 and risk. Calling the stumpage value, x, 



x=P (v — c — r) 



In this case P is assumed at 25 per cent, for lumber and 30 

 per cent, for other products, as there is less risk in handling the 

 latter. 



(2) The Forest Service formula, so called because it is given 

 in the National Forest Manual, is based on the principle of al- 

 lowing as operator's profit an assumed percentage of the operat- 

 ing costs plus the stumpage value (c+r-fx), adding this to the 



