solution are produced. In addition, small quantities of buyers' specification grades are produced from time to time. However, grade 1 of the American Railway Engineers Association and the American Wood Preservers' Association probably accounts for more than 85 per cent of the total output. Most of the domestic consumption of creosote oil, whether of foreign or domestic origin, meets these specifications.

Abroad, at least 17 grades are produced, of which "Standard specification for export to the United States" is produced in greatest quantity. Complete analyses of shipments from the United Kingdom and from domestic sources, purchased over a period of years by one of the principal consumers in the United States, have been compared with standard specifications and found to be comparable in practically every detail.

Comparability is further established by the fact that both foreign and domestic creosote oils are used for the preservation of all forms of wood, are applied in the same type of equipment, and, in many cases, receive and consumed in wood-treating plants without regard to origin.

Table 12 shows in percentages the disposition of the creosote oil produced by the British companies from whom costs were obtained.

TABLE 12.-Relative importance of grades of creosote oil produced in the United Kingdom

Unit sales price of grades of creosote oil in the United Kingdom, 1928-1930, and average, are shown in Table 13.

TABLE 13.-Unit sales prices of grades of creosote oil in the United Kingdom [In cents per United States gallon]

III. COMPARATIVE COSTS OF PRODUCTION AND DELIVERY

The commission included in the scope of the creosote oil investigation not only the costs of production of the oil at the foreign and domestic plants but also the cost of transportation and delivery

to the principal markets in the United States. Because of the fact that transportation charges will be given in various tables in connection with the plant cost data, the marketing and transportation information will be given before the details of plant costs are considered.

PRINCIPAL MARKETS AND COSTS OF DELIVERY

Creosote oil is consumed chiefly by wood-treating plants and these are scattered widely throughout the country. The commission has selected for the purpose of this investigation a number (about 44) of cities and towns in which there is a large consumption and which may be considered representative. In most of these towns there was during the period covered by the investigation some consumption both of the domestic product and of the foreign product. In several, however, the consumption was confined to the one or the other, but in these instances the markets have been so selected, on the basis of geographic proximity and comparative freight rates, that transportation costs to a point supplied by domestic producers are fairly comparable with transportation costs to a neighboring point supplied from abroad.

The commission ascertained the actual average unit cost of transportation during the 3-year period 1928-1930 from each domestic plant covered by the cost investigation to each of the selected markets, and where two or more plants shipped to the same market, these costs were combined into an average weighted by the shipments from the respective plants.

By reason of the fact that much of the British creosote oil exported to the United States is handled through central agencies, it was impossible to ascertain how much was shipped from each plant covered by the cost investigation to each of the selected markets. Consequently the weighted average cost of transportation of all British export creosote oil to the British seaports was ascertained, and the cost of ocean transportation and inland transportation in the United States was ascertained for the total quantity actually shipped to the given market by the British selling agencies.

The selected markets have been grouped into regions and subregions, the cost of delivery to each of these being calculated by weighting the domestic costs according to the shipments to the sev eral markets from the domestic plants covered by the investigation, and by weighting the British costs according to the British shipments.

Table 14 shows by market areas the results of this calculation of costs of transportation.

TABLE 14.-Costs of transportation and delivery of domestic and foreign creosote oil to selected markets in the United States

The average cost of delivering British creosote oil to the principal markets in the United States during the 3-year period was 3.33 cents per gallon, and the corresponding average cost of delivering the domestic product, 2.19 cents. The relation between the domestic and the foreign costs of transportation differs greatly in the different districts. To the South Atlantic area, the Gulf coast and the Pacific coast, the domestic costs exceed the foreign costs, but in the other districts the reverse is the case.

PLANT COST OF CREOSOTE OIL-METHODS OF COMPUTING COSTS OF

PRODUCTION

Allocation of general costs.-Since creosote oil is a joint product, and since distillation of tar for the purpose of obtaining creosote oil and its joint products is alternative with its distillation for the primary purpose of obtaining refined tar, it is evident that the cost of coal tar, which represents over two-thirds of the total costs. in the industry, must be allocated among the several products. The most appropriate method of allocation is on the basis of the relative net value of the products—that is, the value of sales less the costs directly attributable to the given product. If the allocation were based on quantity-that is, treating the tar going into each product as costing the same-the result would be normally to show the more valuable products selling at a profit and the less valuable at a loss.

Certain of the expenses of treating tar are likewise of a joint character and must be allocated according to the value of the products. Other expenses are directly connected with the finishing process for the several individual products, and those connected with creosote oil can be charged directly to that product.

The producers of creosote oil, both in the United States and in the United Kingdom, generally do not attempt to determine the cost of production of any one product of coal-tar distillation. The commission, to establish the cost of production of creosote oil, has found it necessary to apply the principle set forth.

TAR AS AN ELEMENT OF COST

Since tar represents about two-thirds of the total cost of producing creosote oil, both in the United Kingdom and in the United States, the cost of producing creosote oil depends largely on the cost of tar. Conversely, however, the cost of tar depends largely on the value or selling price of creosote oil and of the other products of distillation. This is true to a peculiar degree because coal tar is itself a by-product of the manufacture of gas or of coke. The share of the expenses of those industries which is assignable to coal tar depends on the price that can be obtained for it, which price in turn depends on the values of the various products extracted from the tar. By reason of the fact that the greater part of the British creosote oil is ordinarily marketed in the United States, the British value of tar, and consequently the cost of creosote oil in the United Kingdom, depends in a considerable measure on the price received for the creosote oil in the United States. Prices received for pitch and other joint products are other important factors.

This situation with respect to the cost of tar is the more significant because a large fraction of the production of creosote oil is by concerns which do not buy tar but either produce it themselves or, in the United Kingdom, receive it from tar producers on a cooperative basis, returning to those producers the value of the products obtained less the cost of conversion (including normal return to capital). With these British cooperative concerns the cost of tar is a direct function of the values of the finished products. In the case of creosote oil, manufacturers who are themselves producers of tar, the cost of tar shown in the accounts varies with the policy of the concern; in some cases it is based on the price the producer might expect to get if it sold the tar to others, in some cases on the value actually obtained, or expected to be obtained, from the products, and in some cases on the value of tar for its alternative use as fuel. About 18 per cent of the domestic output of creosote oil is by producers who carry the cost of tar in their books on the basis of fuel value. No foreign producer covered by the investigation computed the cost of tar in this manner, tar not being consumed as fuel in the United Kingdom.

The commission, as the general basis of the cost comparison for creosote oil, has accepted the item of cost of tar as it appears on the books of the several tar-distilling concerns. The results of a different method, using, as the basis of tar cost, the prevailing prices at which tar was sold, are mentioned in the following discussion.

THE VALUE OF PITCH IN THE UNITED STATES

In the application of the principle of allocating costs according to sales value of the several products, the cost of creosote oil is affected by the value assigned to each other product. In the domestic industry, a question arises as to the value to be assigned to pitch, for the reason that during part of the period covered by the cost investigation certain domestic producers, as already stated, stored large quantities of pitch instead of selling it. The pitch thus stored could not have been sold at the price received for the quantities actually sold. The commission assigned to this unsold pitch a price representing its value as fuel; this has been computed on the assumption that the heating power of pitch was 16 per cent greater than that of bituminous coal, the price of coal being taken at the level prevailing in the given region.1

BASIS OF BRITISH COSTS

It has been shown (p. 17) that during 1929 and 1930 a considerable part of the British output of creosote oil was sold for fuel at a price much lower than that of the product exported to the United States. Following the principle of allocating the cost of tar and other joint costs according to the value of the products, the cost of the creosote oil exported to the United States during these years was considerably higher than that of other creosote oil produced in the United Kingdom. For comparison with domestic costs, British costs have been computed on the basis of the product exported to the United States.

GENERAL COST COMPARISON

Table 15 shows for the three years 1928-1930 combined, average domestic and British costs on the basis described. The total cost at plant for the domestic product was 10.8 cents per gallon, whereas the cost of the British product exported to the United States was 10.1 cents. Including transportation to the selected markets in the United States, the domestic cost was 13 cents and the foreign cost, 13.5 cents.

TABLE 15.-Comparative domestic and British costs of creosote oil, average for the period 1928-1930 [Cents per United States gallon]

1 Because of its physical condition, the stored pitch probably could not in fact be sold as fuel at the price computed in this manner, but, on the other hand, if market conditions should change favorably, as the producers of pitch hoped when they stored it, the pitch would be sold for nonfuel uses at a higher price than that used in the cost calculation.