Cost Finding in the Manufacture of One Inch Finish Based on 1x3 and Wider Softwood

By Frank J. Newman, Research Departnent Hammond Lumber Co.

In introducing this paper, it might be well to state that the chief incentive for selecting this subject is to again bring to the atten- tion of the manufacturers of finish lumber the growing necessity of knowing their manutacturing costs, so that in the broad field of competition they may market this product at a profit based on actual production cost and not on the too often used guess or assumed cost.

The protective system of standard lists carries many millmen, who do not and will not see the necessity of a cost system, along on the wave of prosperity, but when theri comes a_ let up in the building industry and the market slumps then the min who ii able to meet conditions with a definite knowledge of his costs will be able to survive the test a great deal more surely than the man who rides_ along and sells on the price es- tablished bv others.

In presenting the accompanying detailed cost analysis of finish lumber. all of which is based on 1x3 and wider soitwoods. there may be many criticisms as to the method pursued in the application of various over- head burdens, machine rates and machine burdens, etc., but in explanation. I mav state, that in all cases the figures used wer6. wherever possible, arrived -at from actual record, but as methods of handling, storing and even machining materials vary so much, I request that you give more attention to the method of applying the rates and figures than to the actual figures themselves. The overhead and machine rates reflect better than average efficiency, but such comparisor.r as you make should have substituted your overheads.

First we receive all of our rough lumber at seaboard at an average price of iay $36.00 per M. ft. BM. Labor handline from shiu to wharf and from wharf to cais comes tL $1.20 per M. Our wharfage tax amounts to l2c per M., which makes $1.32 per M. for wharfage and handling from ship to cars. Our freight to Los Angeles from Terminal is 4c per 100 pounds and 3,300 pounds to !lr_. M. Ft. makes 91,32 per M. for freight. W.e salvage 50(/c of our dunnage. wh-ich brings the cost down to 24c per M., based on a carload average of 21,000 feet. To unload lumber in the yard from cars costs 39c per M., which brings the price to $39.27 at the point where dry kiln charges commence to apply. For 1923 our average monthlv volume through the kilns was - 516,318 fi. B_M._ with an average labor charge of $1507.65. This includes all labor of eettins lunrber from piles to kilns, through kilns and in_to .storage in dry sheds and equals 2.97 per II. including liability insuranci. Distri6u- tion of this charge gives first trucking from -rough pile to kiln cars, which is .39 per M. loading kiln cars .48 per M., loading cars into kiln .16 per M. At this point we-apply our dry kiln fixed charse of .93 per M.. which is arrived at as follows:

17,600 square feet of land for kiln space which we value at 80c per kiln trucks, tracks, in and out

This yearly total of 95,669.12 divided by yearly footage 6,122 M. equals .93 approx., which-is our dry kiln fixed charge pei M.

We now have a total charge on the lumber of $40.97 per M. at which point we ap- ply our carrying chrage for stock in the kiln as follows:

Average stock in kiln is 50 M. Ft. @40.97 is an investment value of $2048.50.

Interest on Investment @6% .$ 122.91

Taxes on Investment @3.93 80.51

Total carrying charge on stock in kiln ......$ 203.42

'We turn stock over every tlrree days in kiln. so total charge 203.41 divided b; 120 equals $1.70 and this dividerl bv invesiment value $2048.50 equals 1/70,/, aiprox. Then carr5ring charge in kiln is l/10% of 40.97 equals .04.

It cost l6c per M. for cars out of kiln. which makes a total charge at this point of $41.17 per M. Then conres the kiln- loss or cutting ends, splits. checks. warping and upgr?_d.rng. due to. cargo grade not equaling nntsn grade, whlch as nearly as can be de_ termined, is approximatell. 87 or $3.29 per M.

Next we have unloading kiln cars. sortins an<l pilirrg in dry shed @2.17 per M. whicE brrngs the total to $46.63 per M.

At this point we apply our carrying charge in dry shed, which- is obtained ai follows:

T[q l11a our dry sheds occupy is 22.680 square feet valued at -gOc --p,er square foot ......$18,129.20

Value of building @80cx15.424 .'12.3gg.00

Average stock in sheds 500M(D_

46.63 .i. zr.srs.oo

Makinf a total investment of .....$S3,g43.20

Interest on investment

_

@6% .......$ 3,2s0.ss

Ins. on Bldg. and Stock

619.95

Making a total overhead of ....$6.323.72

Based on a thirty day turnover of stock or $6,320.72 divided by l2 equals 526.98 the monthly overhead expense. This amount divided by the value of stock 23,315.00 equals 2-3/10%, which is the carrying charge percentage-2-3/10 of 46.63 equals 1.07, which rrovv nrakes a total cost at this point oI 47.70.

We now have the general burden to ap- ply, which is as follows:

Superintendent .04, Watchman .03 and Repair & Expense .14 which total .21c per M., which applied to the cost price equals a grand total of 47.91, which gives us the complete cost of lumber in the dry sheds.

At this point it would be well to explain that a1l liability insurance has been included in the labor charges as we went along.

We now have a cost of kiln dried lumber graded and piled in sheds amounting to $17.91.

Then filling detail orders from sl.red to n-rill, two men one @6.00 and one @4.50 total $10.50, will handle 8,000 feet in 8 hours at a cost per M. Ft. of .......$1.31

SIS through planer 20 M. Ft. in 8 hours or 2/5 hr. per M. @2.16 . ...$ .86

Then rippirrg to width'6 M. Ft. in 8 hours or l-l/3 Hrs. per M. @1.95 ..$2.60 Net sticking about 2 M. Ft. in 8 Hrs. or 4 hrs per M. @2.22 ......98.88

We figure 14 set ups per day on detail cotrsuming 4 hours of the 8 hour day, and based on 2 M. Ft. per day each set up averages 2/7 hrs. at approx. 63fc per set up rr'i,' l'

NI. of $66.00.

Now we have extra pieces run with order to prevent setting up again for shortages or fall downs. This we figure at 5% or $3.30.

Sanded 1S 10 M. Ft. in 8 hours or 4/5 hrs. per M. @3.23 ..$2.58

Then comes handling from Mill into racks irr finish shed, 2-9/10 hrs. per M. @75c average ..$2.17

At this point we have a total cost per M. of .... ..$74.05

W'e now come to a point where we ap- ply the carrying charge in finish shed, which is arrived at as follou's:

Value of land sheds occupy 41,-

This divided by 12 equals 1042.18 or the monthly carrying charge. This divided by stock value or 37,025.N equals 2-8l107o.'then 2-8/10% of the cost in shed or 74.05 equals 2.07 per M.

Then rve have loading and checking out on orders l-9,/10 hrs. per M. @75 equals $1.43.

This brings us to a cost of $77.55.

And last we apply our office and selling overhead of l0Vo on $77.55 which equals 97.76, whch brings us to a GRAND TOTAL OF $8s.31 PER M.

All of the above information will show that it is no very simple matter to arrive at a cost price, but it serves to show that in building up step by step, a manufacturer may, by going over the data, put his finger

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