Gogan Forest Products maintains its own woodlots from which it harvests trees. It keeps the trees that it can use in its sawmills to make lumber and sells the remaining trees to a nearby pulp mill.
Ronnie Gogan, the president and chief operating officer, is concerned about the profitability of the sawmill. In particular, he is concerned about the profits generated by his mill. From talking to other owners of small sawmills, Ronnie is convinced that his profit levels are lower than theirs even though he processes more logs.
A sawmill uses all the tree that arrives in its yard. The is stripped, packaged, and large basic pieces are sold to nurseries. Wood chips are used along with sawdust to make particle board. Any sawdust remaining from the particle board operation is used in the kilns used to dry the lumber.
Ronnie observed, "Based on the market price for sawlogs, the raw material component of our lumber is about 65%. We need to control material use to be profitable. I was thinking about using material yield but our material yield is l since we use all the log.”
Can you devise a financial productivity ratio that might provide Ronnie with an overview of his operations?
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