Garment Costing Methods | How to Calculate Raw Material Cost for Garments

Last Updated on 02/05/2021

Garment Costing Methods

Vishnu Pareek
(Diploma in Fashion and Clothing Technology)
DKTE Society’s Textile & Engineering Institute – Ichalkaranji, India
Email: vishnudkte@gmail.com

 

Garment Costing:
Since the industrial beginnings, textiles and apparel have been the leaders in terms of cost awareness as well as product innovations. Textile Costing includes all the activities like sourcing of raw materials and accessories, knitting fabrics, processing and finishing of fabrics, sewing and packing of garments, transport and conveyance, shipping, over heads, banking charges and commissions, etc.

To do perfect garment costing, one must know about all these activities thoroughly about their costs, procedures, advantages and risk factors. Also, he must know how to solve the problems when occurred and to take suitable alternate decision immediately in time. Generally senior garment merchandiser do the costing of garments.

garment costing

There are always fluctuations in the costs of raw materials and accessories, charges of knitting, processing, finishing, sewing and packing, charges of transport and conveyance. Hence Knowledge Update is required about the latest prices and charges, latest procedures, methods and quality systems, market prices and availability, transportation (road, sea, air) and freight charges, etc.

Quality depends on price; price depends on quality. Each product will have different price according to its quality.

Different Garment Costing Methods:
Garment costing methods indicate the systems and processes involved in the estimation of costs and it depends on the type and nature of manufacturing activity.

  1. Job Costing,
  2. Batch Costing,
  3. Contract or Terminal Costing,
  4. Single or Output Costing,
  5. Process Costing,
  6. Operation Costing,
  7. Operating Costing,
  8. Departmental Costing,
  9. Multiple Costing.

Above garment costing methods are briefly described below:

1. Job Costing
Job Costing is done, as the name suggests, on job works which may differ from case to case basis. By giving different job numbers and debiting the costs on the jobs, cost of each job work can be ascertained.

2. Batch Costing or Batch Costing method
Batch Costing is similar to job costing but pertains to batches.

3. Contract Costing or Terminal Costing
Contract Costing is done for large contracts. Such businesses need not maintain costs separately as financial accounting will indicate the costs and expenses. In such contracting firms, the cost sheets are maintained for individual contracts. In the absence of expense budgets, inefficiencies are often hidden in such cost sheets.

4. Single or Output Costing
Single Costing is done when the end product is single like a colliery or a power station. Cost sheets are maintained.

5. Process Costing
Process Costing is useful when a product passes through various processes, yielding different by products of commercial value. This is useful in industries like refineries.

6. Operation Costing
Operation Costing is followed by mechanical engineering industries which make products or parts. Each manufacturing operation cost is taken into account. There is no difference between this and process costing.

7. Operating Costing
Operating Costing method is followed when the company does not have a specific product as output like the service industries.

8. Departmental Costing
When an end product is ultimately manufactured by different departments this method can be useful.

9. Multiple Costing
Multiple Costing is useful when a product is manufactured in an assembly line like an automobile. It is important to choose the most appropriate method of costing for your business or industry. Most businesses do not like to engage cost accountants and leave it to financial accountants to take care of this job. It is not recommended. There are many free-lance cost accountants available and they can be engaged on need basis.

How to Calculate Raw Material Cost for Garments?
Material cost is the major cost component of a garment manufacturing costs. A correct cost calculation method will give you better projection of garment cost for a style. In this article how to calculate direct materials cost have been explained in details. Raw materials required for making a garment is sourced from suppliers. Main materials are like fabric, labels, sewing thread, hang tags, trims etc. So to have correct material cost you must have price knowledge of each item. Steps used for material costing are – Preparation of material requirement sheet Material price listing Preparation of material cost sheet Prepare material requirement sheet List down all items required and calculate consumption per unit for all materials to be used in garments.

For an example, let you are going calculate material cost for a polo shirt. To make polo you need knitted fabric – Single jersey/pique, cuff and collar rib. Sourcing of knitted fabric can be done three ways – You can directly purchased dyed fabric or – You can source yarn, knit fabric and process the knitted fabric as per your requirement or – Purchase dyed yarn and knit. Let you will purchase yarn and get knitting and dyeing processes done by job workers. To go through this process, collect the pricing list of different types of yarn (or at least for the yarn that you will purchase for your product), knitting cost, knitting loss%, dyeing cost per kg and process loss% from suppliers. Material Price listing Collect material price quote for all the material you need to purchase from different vendors. Prepare database for the current market price of raw materials.

For example, here is one Price List Yarn: 
The costs for different yarns are – 20s Combed – Rs.105/kg 30s Combed – Rs. 115/kg 50s Combed – Rs.140-145/kg 2/60s Combed – Rs.200/Kg 2/60s dyed yarn – Rs.420/Kg dark shade Knitting cost: For Single Jersey – Rs.15/kg For Rib – Rs.18/kg For Interlock – Rs. 30-35/kg Knitting loss: 2% Dyeing cost: Rs. 80/kg for dark shades Process loss (Dyeing): 6% Fabric cost: Ready to use fabric cost is calculated using basic calculation as shown in the following table. Cost of the knits fabric is represented in price per Kg

Shell Fabric Collar/Cuff
Fabric Description 2/60s single jersey 2/60s rib
Yarn cost (Rs.) 200.00 200.00
Knitting cost (Rs.) 18.00 20.00
Knitting loss (2%) 4.36 4.40
Processing cost (Dyeing) (Rs.) 80.00 80.00
Processing loss (6%) (Rs.) 18.14 18.26
Cost per Kg  Rs. 320.50 Rs. 322.66

Fabric Consumption: 
Next step is to find requirement of fabric for the polo. Suppose for this polo shirt you need shell fabric 0.32 Kg and Ribs for cuff and collar 0.080 Kg. Read how to calculate fabric consumption for a knitted garment to know fabric consumption calculation.

Prepare material Cost Sheet Once you find fabric cost and fabric consumption prepare material cost sheet including all other material required to make a garment ready for sale. An example of material cost sheet has been shown below.

Items Consumption UOM* Rate (Rs.) Amount (Rs.) Remarks
1 2/60s single jersey 0.32 KGs 320.5 102.56
2 Cuff and collar ribs 0.08 KGs 322.66 25.81
3 Sewing thread 159 Meters 4 approx.
4 Buttons 3 Gross 2 approx.
5 Main label 1 Unit 1 approx.
6 Care label 1 Unit 1 approx.
7 Hang Tags 1 Unit 3 approx.
8 Price Tags 1 Unit 2 approx.
9 Poly bags 1 Unit 1 approx.
10 Kimble 1 Unit 0.5 approx.
 Total Cost 142.87

So, Total fabric cost is Rs. 128.37 and including other material costs total cost of the material for making this Polo Rs. 142.87 Now for each item merchants generally purchased extra quantity of inventory (from 2% to 7%) as buffer.

This excess cost due to extra purchase of material is added into the garment costing.

Conclusion:
Costing is the procedure of determination of production and marketing cost of each product in the line. Costing decisions include every functional division of an industry. Pricing is the process of determination of selling price of the products that are manufactured. It is based on information given in the costing process, the value customers will place on the product, and the competition in the retail market. Costing is very important and critical task for apparel merchandiser. A merchandiser should know all garment costing methods for proper costing.

References:

  1. Overview of fashion brand – By Prasad Kulkarni
  2. Apparel Manufacturing Technology by T. Karthik, P. Ganesan and D. Gopalakrishnan
  3. Apparel Merchandising by R. Rathinamoorthy and R. Surjit
  4. http://www.onlineclothingstudy.com/2012/06/how-to-calculate-raw-material-cost-for.html

You may also like:

  1. Garment Costing Tips and Techniques for Students and Professionals
  2. Cost Analysis of Garments | Factors of Garment Costing
  3. Step by Step Execution of Garment Export Order
  4. Fabric Sourcing: Key Task for Garment Merchandiser
  5. Costing Process of Long Sleeve Shirt (Woven)
  6. Role of Merchandiser in Garment Industry

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