Logging Cost Assignment

By E.W. Ted Robak

Don Lebois has called you again.  He is one of your contractors with an annual production of about 30,000 m3, and he has been complaining that the rate ($27.90/m3) you are paying him for the 7000 m3 in Block 003 is far too low.  He tells you that he is quickly going broke at the price he is being paid.  You do not want to lose a contractor, but nor do you want to give him more than what is reasonable.  You figure that 9% return on his equipment investment is very reasonable given the economic situation.  You know that he is paying his operators $12/SMH, with 20% fringes.  The feller buncher and skidder work two 8-hour shifts per operating day, while the delimber works a single nine hour shift, and they work a 200 day operating year.  The 2 trucks that Don owns work 200 days per year, carry a loadsize of 35 m3., have average speeds as indicated in the table, and the drivers work 9 hour shifts.  You estimate that total delay time for loading, unloading and other waiting time is about 30 minutes per trip.  The distance from the mill to Block 003 is 50 km on the highway, 20 km on the primary road, and 8 km on a tertiary road.  Fuel cost is expected to average $1.05/l.

Equipment Information

* Average over the year.

Trucking Information

a)     What is a target rate to pay Don for harvesting and delivering wood from Block 003? 

b)     You show Don the figures that you have arrived at and suggest that the rate he is being paid is reasonable.  But Don reminds you that the figures you have arrived at exclude his overhead costs: his own salary of $35000, his office expense of $15,000 and his truck (which he estimates to be $10 000/year).   He argues that you should raise the rate so he can recoup these costs when he has finished block 003.  Is he right?  How would you include his concern for overhead?