HIGHER PRICE WANTED

Southland Times, Issue 24055, 20 February 1940, Page 6

HIGHER PRICE WANTED

CARDBOARD MADE IN N.Z. WHAKATANE MILLS APPLICATION INVESTIGATION OF COSTING SYSTEM (United Press Association) WELLINGTON, February 19. The hearing by the Price Investigation Tribunal of the application by Whakatane Paper Mills Ltd. to increase the prices of the cardboard it manufactures was continued in the Court ol Arbitration today, the day being devoted to the examination of one of the accountants of the company. His Honour Mr Justice Hunter presided, and with him Mr H. L. Wise. Messrs H. P. Richmond and W. G. Clavis, of Auckland, appeared for the company, Dr N. A. Foden for the Crown and Mr W. Perry for the users of Whakatane cardboard. Under cross-examination William Drummond Barclay, registered accountant, of Auckland, who gave evidence on Friday afternoon on the company’s costing system, said he did not check up on the relevancy or necessity of all the items of expenditure in respect to plant or buildings. That was outside the ambit of his inquiries. Before asking anyone to accept the mill expenditure figure of £586,000 as conclusive, he would expect him to check the amounts from the beginning. Dr Foden: I take it, speaking generally, that they are still adopting the policy of trial and error in many phases of the mill activities?—Speaking generally, one might say they had now gained sufficient experience to get on a more satisfactory basis as regards costs. CONTINUOUS RUNNING Mr Perry: If the mill could have haa continuous running, the costs of production would be lower?—lt follows that if it is possible to get the ideal of continuous running on one type of board that costs must fall. It is very difficult in practice to get it. Therefore, margins had to be made for contingencies of that nature. “Therefore, from a practical point of view, it is very difficult to get what you call continuous running?” “Yes, unless you had standardization on a smaller number of boards and ‘some kind of rationalization’ and as small a field as possible.” “Do you know the box makers had made certain efforts to meet them?”

“Yes, I understand they had, got down to the irreducible minimum.”

In answer to Mr Wise, the witness agreed that if there were any serious errors in the figures that had been given him, his costing might be considerably affected, but he had indicated clearly the sources of his information. He would agree that the costing figures should be checked before they were accepted and thought if accountants on both sides got together, that matter could be cleared up. He felt the total mill expenditure of £586,000 would be found substantially correct. VARIATIONS IN PRICES His Honour questioned the witness about changes in the company’s prices in the last six months. “Can you tell me.” his Honour asked, “why it was necessary to vary these prices four, five or six times in as many months?” The witness said he thought the simple fact was that the prices in the earlier stages were not based on the costs at all, but on the selling prices of imported lines. The company realized that if it did not sell at the imported price it would get no business, and it would be unable to get the mill going. His Honour: Do you say that though the “life” which the company has now got arises from the fact that there is a war and import control now in force, nevertheless we should fix the prices on that very large sum which they say was invested in the mill. The witness said he thought so. If the matter was looked at from other points of view—high prices due to the war—the company would be entitled to a price at which the board could be imported. It was not asking for that. It was asking for prices based on costs. The public could not have it both ways. Clifton Frederick Langton, costs accountant for the company, said there was a diversity of opinion when the accounts of the company were reclassified. He had handed in his resignation, but it had not been accepted. In reply to his Honour, the witness said that in costing, theory did not matter in the least. Dr Foden: Apparently the system of Horrocks in dealing with the main items alone prevailed. Was that m keeping with sound accountancy?—Yes. In reply to Dr Foden, Langton said it did not matter so much if the detail of costing was not exactly correct, so long as the aggregate was correct. UNALLOTTED EXPENDITURE Dr Foden: Can you explain the entry of £22,000 shown as unallotted expenditure?—Yes. This might be called pioneering expenditure in establishing the new industry. It was made up mostly of engineering costs. Dr Foden drew attention to the item of £5700 shown as expenses, incurred , by Horrocks and De Guyre on the nine months’ trip to England to acquire plant for the company. His Honour: Princes or rajahs might have travelled on this sum. Mr Richmond: Before we talk of princes and rajahs— His Honour: I repeat that two princes or rajahs might well have travelled according to their state or £5700 for nine months. Mr Langton said there may have been a proportion of salary included in the £5700. Dr Foden: What staff of book-keepers does the company have?—We have three. Are you in charge?—No. Wright is in charge. Is your book-keeper competent?— Yes. You admit that with assets totalling over £1,000,000, some amount should be set aside for supervision?—Yes. I would say about 8 per cent. The forests are growing and Nature does not require much supervision. In reply to Mr Richmond, the witness said the “aggregate costs were correct. UNABLE TO TRACE £39,000 Mr Richmond: It has been said that the Government officers had been unable to trace £39,000 of the cost of £586,000 in establishing the business. Has this amount been cleared up?— Yes. It has been made clear now. Is there a stage at which costing breaks down of its own weight?—Yes.

If too much detail is required the cost would be more than it was worth.

His Honour: Your prices have been altered frequently in the past year. On what principle were your prices based? —Up till October of last year the cost was based on the prices of the imported article. Mr Wise: Are you satisfied with the present price list?—Yes. I even think they may be under-estimated. This closed the case for the company. Dr Horace Hugh Corbin, director and technical forestry adviser of the company, called by Dr Foden, said it was quite possible that pulp wood would be obtainable from Pukenui. In 1937 the statement made in the prospectus issued by the New Zealand Timberlands Wood Pulp Co., Ltd. that pulp wood would be obtainable from Pukenui in 1937 was justifiable. The trees at Pukenui were fit for pulping now, but he had not gone into the cost of transport. The hearing will be continued tomorrow.