Scenario Analysis of Profits in Further Processing Lumber to Furniture in Ghana for Export: A Case Study of a Local Firm

Abstract

Scenario analysis was used to investigate whether incurring extra costs towards adding value to lumber through further processing is an economically viable venture or not. In-factory study, observations, records review and interviews were used to collect data on costs and incomes relating to lumber and furniture production and exports. The accounting rule for decisions to sell or further process a semi-processed product at the split-off-point was used to assess the profit level under each of five scenarios developed. Results revealed that, it costs €1,336 (66.80% of FOB value/m 3 of furniture) to convert kiln-dried lumber to 1m 3 of garden furniture which yields income of €2,073.13/m 3. Scenario analyses indicated that, 1m 3 of garden furniture in general could yield additional incomes in the range of €66.077 to €334.414 representing 12.4% and 62.7% respectively over the export values of lumber used. Three species (odum, mixed redwood and teak) were profitable with mixed redwood and teak respectively obtaining the highest (from 48.14% to 123.63%) and the lowest (from 37.59% to 9.44%) additional profits in relation to the FOB value of their kiln-dried lumber. In conclusion, maintaining costs and increasing production volumes appeared to be the best scenario for higher profits in furniture production. Also, further processing lumber to garden furniture for export appear profitable and should be encouraged as an economic decision towards high revenue generation. It was recommended that the three profitable wood species should be considered for plantations by stakeholders in the afforestation and reforestation of degraded forests in Ghana to ensure their continuous availability for the furniture industry.