effectiv6ftfJsefsj?i1

i SUGAR AND WHITE PINE

We rolictt your inquiriet-alro California Red and White Ftr 'Dimeorion Sto& i wE WILL BE GLAD TO QUOTE PRICES

.1,tttaivcrrity Brand" Shingler arc our Specialty.

Lumberman

just to the left of it shows the percentage in relation to th_e cost of goods sold; that is, the saleJ fi,gured at cost. We use particularly this latter columnr in our cost analy- sis, but for comparison with expense data you may have based on percentage of sales, I have inserted the percentages to sales for comparison rn'ith your own figurei.

There is considerable confusion in this "esard on the part of lumiber dealers who should know betterl They will add a .certain percentage to the purchase price, say'30/o, and .ivill expect this to make them a grosi profrt of 3OTo on the sale. This is impossible for 3O/o).,of the purchase price is_ on.ly 23/o of the sale, and this 23/o is .the gross profit obtained, not 30/o:

Adding ]0% tg the purchase price would give only 23/o gross profit, adding 4A/o b the purchase price would give o'nly,28/o gross profit, add,ing 5O/o to the purchase price would give only 33 I-3% gross profit.

I g- calling this to your attention not because you do not know it, but because so many of us are prone to add percentages to cost figures to obtain a fair rprice to ask, and fail entirely to realize the tremendous dlfference betwe_en the percentage we add and the percentage of gross profit this will amount to.

In the foregoing schedule of expenses we have let't out entirell' the head of;fice expenses. These in the case of our firm amount to 5/o of the purchases. To each invoice charged to a yard 5/o .is added which is credited to the head offtce and this amount just about covers this expense, with nothing left over, for Federal Taxes take all that is left of this 5/o after paying the head office expe,nses. These head office expenses cover the following: ference see the two right hand columns of Chart No. 1 which shows these same figures. Please notg that to ob; t"jl 1 lO/o profit there must be added'L4/o after you have a$d9d every single item of cost of doing busineis. l0% of the p!ryha1e- price added here would .irake a net p:ofrt of only 7/o. If we want a net profit of L0% on the'sales we. must add 74/o after adding all of the items of cost of doing business. In all 40/o must be added to the delivered purchase price to cover items of expense and leave this profit to the firm. This 4O/o added wiil give a gros,s profit of 28% of the sales.

Purchasing expense, auditing and - field supervision, checking all sales tickets, geneial management, head office bookkeeping, part of the Federal Taxes.

Chart Ii

100 Pct Invoice price (Add freight not included in invoice)

5 " Head office expe,nse 16 " Yard operating expense per Column 3, Chart I

5 " Taxes, .3 percent; insurance, .1; rent, 1.3; rebates and discount, 1; depreciation, .9; bad accounts, .8; mdse. loss, .3; employes' bonus, .&-an ag- gregate of approximately 5 percent.

126 Pct t4 To insure net profit of 10 cent on selling price

Delivered Cost

X

(Where Manv

firmi quit estim,ating costs)

....Operating cost. Perr

t+0P., ......i. ..Sellingprice

Now bear in mind if anything is sold with less than 4O/o added to the purchase price tie:e must be corresponding sales to offset them upon which more than 4A/o of ih" pui. chase price, such as cement, plaster and mapy othgr items,

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In the following Chart I have tried to show in graphic form what must be added to an article to, make a ,ne*t piofit of I0/o on the sale. I have shown this in the form of a column starting with lffi/o as the delivered cost of the article. All freight, whether carload or l. c. l. must be added to -make up this delvered ,cost. What we must get by way of additional price for whatever article *e "r" .Ell_ ing is shcwn as an addition to this column, showing each item of expense. Now I have put the let,ter ,,X,'"where many concerns make the mistake of thinking that they are at the end of the expense, believing anything additio;al is profit. Beyond this m,ark "X" are the many small items which amount to considerable in the aggregate which many concerns leave out e,ntirely in figuring their cost of doin.g business. Bear in mrind that these percentages sh,o_w1 are percentages of the cost price of the goods so-id, and therefore will run higher than any percentige figurei which you ,may have which are percentages of -the -sales rather than of the purchases. Fbr comparlson of this dif_