Cost calculation in the spinning industry is very important for determining the profitability and competitiveness of a spinning mill. Because, incorrect estimation of cost is one of the principle reasons for the wide difference in yarn cost. The total cost of yarn production consists of several key components, with raw material costs being the most significant, typically accounting for 60-70% of the total expense. In this article I will try to explain a strategic approach to cost calculation and control in the spinning industry.
Classification of Costs in Spinning
Normally, raw cotton, wages and salaries, power, stores, overheads, interest and depreciation are the elements of spinning costs. The major elements of cost are provided in the Figure 1 and the various proportion of the cost associated with each of the cost elements are provided in Figure 2.
The classification in Figure 2 shows that the raw material cost occupies the major share of cost followed by power cost. This classification gives a clear indication that cost reduction in spinning is very intricate as major share of cost is the raw material cost which is not in control of the spinning industry. The proportion of costs varies from company to company and for different counts also.
Hence, it becomes very important to account and control all the other costs correctly so that cost reduction or optimization can be achieved. The costs are also classified as fixed, variable and semi variable costs. The fixed costs are administration, staff salary, store consumables, interest on term loan and depreciation. By and large, the fixed expenses do not vary with variation in production. The variable costs are raw material (cotton) cost, direct wages, power cost (machinery), selling expenses, packing material and interest on working capital. These costs are directly proportionate to the production. The semi variable expenses are the repairs and maintenance, store consumables which have certain part of variable cost and remaining part as fixed costs. In the context of direct and indirect costs, raw material cost, wages for manpower in production department and power cost for machinery usage are part of direct costs. Costs for wages for workmen like fitters, cleaners, generator operators and electrician, power cost for lighting, humidification, staff salary, administration expenses, selling expenses, repairs and maintenance, store consumables, interest on working capital, interest on term loan and depreciation are indirect costs. The other overhead expenses mentioned in Figure 2 are expenses incurred for repairs and maintenance, administration and selling expenses.
Profit in a Spinning Mill
Profit margin in a spinning mill is very constrained. The spinning industry works on very tight margins many times as the raw material cost occupies major share of the total cost of yarn. Hence it is important to understand the parameters that decide the profit margin.
They are:
- Yarn selling price (YSP) – Selling price of yarn
- Raw material cost (RMC) – Cost of raw material
- Conversion cost – Cost for converting raw material into finished goods
1. Yarn selling price and raw material cost
The yarn selling price and raw material cost are commercial parameters which are determined majorly by external factors like demand and supply, working capital availability, natural calamities, interest rate, country’s economy, political conditions, trade policies, etc. These factors are not under the control of the management to a very great extent. These two parameters are market based. The difference between yarn selling price and raw material cost is known as net output value (NOV). The net output value is a major factor which ultimately decides whether manufacturing a particular count is worth or not. However, it cannot be concluded that higher the net output value, higher is the profit and lower the net output value signifies lesser profit because conversion costs play a role in it. The difference between net output value and conversion cost will eventually mean the profit and hence if this difference if higher, then profit will be higher. Net output value should not be wrongly taken as the profit of the company.
2. Raw material cost (RMC) in spinning industry
Raw Material Cost (RMC) is the most significant component of yarn production expenses, accounting for approximately 60-70% of the total cost in a spinning mill. It primarily includes the cost of fibers such as cotton, polyester, viscose, wool, and blended fibers, depending on the type of yarn being produced.
3. Conversion cost
Conversion cost is the cost incurred to convert the raw material (fiber) into finished goods. It is the only parameter that can be controlled by the management and the company as yarn selling price and raw material cost is not in the control of the company. Conversion cost reduction and optimization is in the control of the industry’s manufacturing process as it involves various resources such as men, machine and material utilized for manufacturing. The conversion costs can be reduced by managing the resources efficiently. The conversion cost involves all the costs including fixed costs, power and wages except clean material cost.
The conversion costs vary greatly between spinning mills for the same count spun.
Cost Calculation in a Spinning Mill
The costing activities of a spinning mill are discussed below. Actually, the cost estimation that is done is called as standard costing and it can always be compared with actual costs incurred to know the deviations and estimate costs accurately in the future. The cost calculations are done for the following:
- Material cost
- Labor cost
- Power cost
- Other overheads
For standard cost determination in spinning industry, the following parameters are required. Mixing cost, yarn realization and selling price of waste are required in the case of raw material cost estimation. With respect to labor cost computation, average wage rate, operative hours for 1000 spindles are required. Power cost estimation requires power cost per unit and power needed per unit weight of material produced in each department. In other costs determination, the following parameters are required. Cost of packing material per unit weight of yarn and consumption of stores per machine shifts are required for consumables and stores expenses estimation. The expenses for various items like administration, selling, interest, depreciation, repair and maintenance are also required for cost determination. All these requirements are explained further in detail with examples in their appropriate sections. In the next section, material costing involving mixing cost, yarn realization, selling price of waste is explained.
A. Material Costing
The material costing details computation of all costing activities with respect to the material utilized. Here the costing of raw material for production of yarn is discussed. The material costing is done in a very detailed manner in a spinning industry. The other direct and indirect material costing like packing material and store consumables are discussed later as part of overheads. The raw material costing involves calculation of the following costs:
- Clean material cost
- Mixing cost
- Yarn realization
- Production and waste calculation
- Selling price of waste
i. Clean material cost
The clean material cost or colloquially called as clean cotton cost estimation helps in determining the cost of the material used.
The formula for calculating clean material cost is given below:
…………………………………Raw material cost
Clean material cost = [——————————— x 100] – Overall selling price of different wastes
………………………………….Yarn realization
To estimate the clean cotton cost, it is essential to understand how mixing cost (raw material cost), production and waste are calculated. Based on production and waste calculation, yarn realization and waste multiplier are also estimated. Finally, the selling prices of waste are also considered for estimating the clean material cost. With these details, clean material cost is found out.
ii. Mixing cost
Mixing cost is the cost arrived by taking the weighted average of the proportions of cotton used in a count. Before proceeding with the mixing cost calculations, it is essential to understand the raw material purchase practices in mills for cost calculation.
iii. Yarn realization
I already published an comprehensive article on Yarn realization You can read here, Yarn Realization in Spinning
iv. Production and waste estimation in spinning
The production and waste is estimated in two ways. Based on the details of blow room and waste % generated in each process, the production and waste is calculated for all the processes till spinning. This process is called as forward calculation process. Based on the details of spinning and waste % generated in each process, the production and waste is calculated for all the processes till blowroom. This process is called as backward calculation process. For cotton material, backward calculation is majorly used and for cotton and its blends (like polyester and cotton blends), forward calculation is used as both fibers are blended in blowroom or drawing. The forward calculation is used when the mixing quantity is known, and final yarn required is not known. They start production based on fiber availability than basing it on the yarn requirement. If the yarn requirement is known and fiber is available, then backward calculation is done based on the production of yarn required in ring frame, may be to cater to a particular order.
Waste generation in spinning is inevitable and it is also very high when spinning involves natural fibers. Although fibers like cotton are ginned and then taken for spinning, the waste generation is high. Waste is also generated more when comber process is used for cotton to remove the short fibers known as noils. The waste generated in spinning is classified as saleable waste and usable waste. Some companies may sell the usable waste also instead of utilizing it in production based on the quality maintained as waste utilized again in production will reduce the yarn quality.
The various types of spinning waste generated are contamination, droppings, flat and droppings, web and lap, sliver, noil, roving, pneumafil and hard waste.
What is waste multiplier?
Waste multiplier is a factor used in spinning and is calculated using the yarn realization percentage. It is a very useful factor to be considered in spinning process where waste is an important determining factor of cost per unit of yarn.
It gives the quantity of raw material required per unit weight of final material after giving allowances for the losses due to waste. For example, it gives the quantity of cotton required per kg or lb of yarn after giving allowances for the losses due to waste. It is the inverse of yarn realization expressed as a ratio.
The formula for calculating waste multiplier is provided below:
…………………………………..100
Waste multiplier = ———————————-
…………………………..Yarn realization
The following example explains the calculation of waste multiplier.
Example:
Calculate the waste multiplier when yarn realization is 77.03%.
Solution:
……………………………………100
Waste multiplier = ———————————-
…………………………..Yarn realization
…..100
= ———-
….77.03
= 1.30
Waste multiplier = 1.30
vi. Selling price of wastes
For calculating clean material cost, overall selling price of wastes is estimated. The waste generated in spinning industry is used or sold. In some cases, the usable waste is also sold if the customer requires more quality in the yarn spun.
B. Labor Cost Estimation
Spinning industries are labor intensive industries to a very great extent. It is still the same in many undeveloped and underdeveloped countries. The labor requirement is getting reduced slowly as the industries move towards modernization. The various activities like mixing, piecing, material movement and doffing are now done automatically aiding in reduction of work force.
However, the need for labor is still more in these industries and they occupy a major role in deciding the final costing of yarn.
The various categories of workers working in a spinning mill are mixing attendant, blow room tenter, card tenter, comber tenter, draw frame tenter, speed frame tenter, doffer, ring frame tenter, reliever, doffer, cone winding tenter and ancillary operatives. A brief guideline of the work assignment for 8 hours for one operator is provided here for better understanding.
C. Power Cost Estimation
The power cost or the energy cost is in an increased trend in spinning mills. They contribute a major share in the costs incurred in a spinning mill. More than 10% of the costs incurred in mills are attributed to power costs which are only next to raw material cost. In most of the cases, power costs are above wages paid because of more modernization and automation. Since labor costs are high, companies go for more automation thereby increasing the power costs. The other reason for power cost to go high is due to continuous usage of the machines in inefficient operating parameters in some cases.
Hence, companies are looking for energy conservation measures to avoid unnecessary losses.
D. Other Overheads
The clean material cost, labor cost and power cost estimations have been seen in detail in the above sections. There are other costs which are apportioned across all the counts produced in the spinning mill based on the production or spindle shifts worked and not determined directly like clean material or labor or power cost. These costs are fixed, variable and semi variable costs. These costs are all part of conversion cost. The various other costs are given below:
- Store consumables
- Packing cost
- Salary of staff
- Administration expenses
- Repairs and maintenance
- Interest – Term loan and Working capital
- Selling expenses
- Depreciation
These costs are detailed and discussed in this section.
a) Store consumables
In spinning industry, there are various items that are purchased frequently for the smooth functioning. The various consumables that are very frequently used in machines are top roller cots, top aprons, bottom aprons, spindle tapes, travelers, spindle oil, other oil, grease, belts, bearings and gears. The average consumption per spindle shifts of these items is also available in SITRA (South India Textile Research Association) norms for spinning mills for more reference. The store consumables come under the fixed cost and some consumables also come under variable cost as they don’t remain constant like some parts that are replaced in a machine due to sudden breakdown. The cost of consumables is apportioned against the different counts running in the mill against their number of spindle shifts worked.
The fixed cost per spindle shift is determined and it is multiplied against the total number of spindle shifts worked for a particular count to find its total consumable cost. The store consumable cost per kg of yarn is determined from the total consumable cost and total production of the particular count. The apportioning of store consumable cost across different counts will be discussed later with an example.
b) Packing cost
The packing materials and packing wages cost is given per unit weight of yarn and then the total packing cost for each count is calculated against the production of each count. Normally the workload of a packer will be to pack 30 bags of 50 kg each per 8 hours and in the case of cartons, a packer will pack 40 cartons of 45 kg each per 8 hours. The packing material costs are provided as a standard for different counts. The packing wages per kg is known and that makes it easy for calculating the total packing cost for each count.
c) Salary of staff
The salaries of staff come under the fixed cost category and doesn’t vary based on the count. The staff salary is distributed to different counts based on the machine shifts worked and production. The spindle shifts worked for each count will be taken as a base for apportioning the salary of staff across various counts processed and an example of apportioning will be provided in the next section.
d) Administration expenses
The company incurs lot of administration expenses while managing orders and taking care of all the office related work. These expenses are similar to staff salary, and they come under the fixed cost category. They are distributed to different counts based on the spindle shifts worked for different counts. The apportioning method will be explained in the next section with an example.
e) Repairs and maintenance
The spinning machines need lot of maintenance for proper running of the machine. It has to be checked for faulty operations periodically and faults should be rectified. The repairs and maintenance activities are also apportioned across various counts based on the spindle shifts worked. These are semi variable expenses and are not fixed in nature as repairs happen at different times. The materials used for repairs and maintenance are accounted under this category. Preventive maintenance and routine maintenance are always done and whenever there is a breakdown, breakdown maintenance is carried out to correct the faults. All the costs incurred for repairs and maintenance like service costs, annual maintenance costs for third party maintenance come under this category. It is discussed with an example in the next section.
f) Interest – Term loan and working capital
Bank loans are taken by industries for two reasons. One to raise capital for building, land, machinery purchase in the form of a term loan and two to raise money for working capital which is the amount required for running the company and to take care of its day-to-day operations. Both these loans come under the fixed costs category. The interest on term loan is distributed to different counts based on the spindle shifts worked and production whereas the interest on working capital is distributed based on the sale value and production of yarn of different counts. An example is given in the next section to understand it better.
g) Selling expenses
These are expenses incurred in sales which include marketing activities, distribution, transportation, customer goodwill maintenance, etc. These come under variable expenses category. These costs are apportioned for different counts based on the sale value and production of yarn of different counts. The selling expenses include sales commission given which comes up to 1% of the cost per unit weight of yarn. An example is given in the next section for computation of selling expenses across different counts.
h) Depreciation
Any running machine will need to be replaced over a time and the value of the machine gets depreciated over a period and spinning machines also come under this category. The depreciation is a fixed cost, and the costs of depreciation are significant in spinning industries as there are many machines used for yarn production. The continuous running at high speeds leads to depreciation. The depreciation expenses are distributed to different counts based on the spindle shifts worked for different counts. The spindle shifts worked, and production of each count is used for apportioning. The apportioning method will be explained in the next section with an example.
Cost Control in Spinning Industry
Cost control in spinning industry is a very important activity because of the lesser profit margin and lesser control of management on costs due to raw material cost and yarn selling cost being fixed by market. So, the mill should take maximum efforts in reducing the conversion costs to reduce the total cost of the yarn for realizing more profit.
Some of the ways for obtaining cost control are provided below:
- The mills should establish norms for all wastes that are extracted for successful waste control.
- Equal emphasis should be given for controlling reusable waste as it involves manpower in extra handling and it also deteriorates the yarn quality.
- Usage of automatic waste evacuation system (AWES) reduces manpower, fly and fluff generation to a great extent.
- Noil extraction can be maintained at 16% as yarn quality is not commensurate with the additional cost of production when noil extraction increases.
- Proper maintenance of machines helps in cost control.
- Adequate training to manpower on waste control, material and machine handling leads to cost control and awareness on impact of cost also helps them to manage activities better thereby leading to reduced cost.
- Higher efficiency motors should be used in all the machines.
- Proper energy audit should be done at regular intervals.
- Avoiding air leakages in machines employing auto doffing and in compressors leads to better utilization of power.
- Non-value added activities (NVA) should be identified and avoided to the best possible extent. A study can be done to identify the NVA’s and to devise suitable strategies for minimizing it.
The list is not exhaustive as cost control measures can be taken in each activity performed by the mill and there are lot of studies available on cost control measures that can be referred for effective cost control.
Conclusion
Accurate cost calculation in the spinning industry requires a detailed analysis of all cost components, proper budgeting, and the use of cost control measures. The spinning industry has detailed methodology for computation of costs involved in yarn manufacturing.
This article presents the complete details of how cost calculation is done in a spinning industry. The clean material cost estimation of cotton and blended yarns and handling waste during clean material cost are highlighted which will help the reader to choose the appropriate method. Similarly, power and labor cost estimation are discussed with detail. This article will help the reader to do the costing effectively for a spinning mill of any production capacity. It will also help in comparing costs and determining the areas where costs can be controlled. By continuously monitoring and adjusting cost estimates based on market conditions, spinning mills can remain competitive in the textile industry.
References:
[1] Rathinamoorthy, R., Surjit, R., & Vardhini, K. J. V. (2024). Handbook of Textile and Apparel Costing. https://doi.org/10.1201/9781032629896
[2] Kumar, R. S. (2014b). Process management in spinning. In CRC Press eBooks. https://doi.org/10.1201/b17452
[3] Gokarneshan, N., Varadarajan, B., & Kumar, C. B. S. (2012). Mechanics and calculations of textile machinery. In Woodhead Publishing India Pvt. Ltd eBooks. https://doi.org/10.1533/9780857095527
[4] Majumdar, A., Das, A., Alagirusamy, R., & Kothari, V. (2012). Process control in textile manufacturing. In Woodhead Publishing Limited eBooks. https://doi.org/10.1533/9780857095633
[5] Purushothama, B. (2016b). Handbook on cotton spinning industry. In WPI Publishing eBooks. https://doi.org/10.1201/b19594
[6] ITJ. (2021a, December 16). Estimating yarn cost in spinning mills – Indian Textile Journal. Indian Textile Journal. https://indiantextilejournal.com/estimating-yarn-cost-in-spinning-mills/
About this author:
Syful Islam
Dept. of Textile Engineering
BGMEA University of Fashion & Technology, Dhaka
Founder & Editor of Textile Learner. He is a Textile Consultant, Blogger & Entrepreneur. Mr. Kiron is working as a textile consultant in several local and international companies. He is also a contributor of Wikipedia.
