NATIONAL INSTITUTE OF FASHION

TECHNOLOGY

FASHION MATERIALS MANAGEMENT

MID-TERM ASSIGNMENT

SUBMITTED BY:
Tarun Saini
 ABSTRACT:
Cost analysis in garment Manufacturing, as the topic implies, deals with the work of costing a garment which involves
the expenses for fabric, trims, cuttings, labour, overhead, sales commission, manufacturer’s profit & transportation. The
production cost of the garment must be determined in order to set the wholesale price, the price that retailers’ pay for
goods that they purchase from manufacturers. There are two types of costing. The first one is pre cost. Pre cost is the
estimate of the garment before it is adopted into the line. The designs must keep the fabric, trim and the labour cost for
each garment within the limit set by the company for a particular line price range. Another method is Final cost. It is the
exact calculation by the costing or import department using actual figures for materials and labour. The costing
Department uses the designer’s worksheet or a prototype garment and the production pattern to analyse material and
construction step by step. The designers may be consulted for information or to recommend more practical or cheaper
ways to make the garment. Labour Cost may be calculated by time study. In this Case engineer’s time operation such as
closing a seam or how long it takes to make an entire garment, or a prototype may be sent to a contractor for costing.
Cost is varying on quality, style, and reliability.

INTRODUCTION:
There has been a tremendous growth in the production of readymade garments in our country. The Garment sector
employs about 1.7 million people catering to the domestic and export markets. The post GATT era removal of quotas in
a phased manner will give larger market access to our garments in the quota countries. Viewed from this angle, scope for
our garment export will be better. At the same time stiff competition from other developing counties like China, Pakistan,
Thailand etc. will have to be reckoned with. It is therefore, of paramount importance that government and industry have
to formulate a concrete program for modernization, technology up gradation etc. The cost per unit of the garment produce
in our country is considered as higher than our competitors nations mainly due to lower output, inadequate training, lack
of infrastructure etc. however now a days the awareness about these things has been increased among the exporters and
they are trying to overcome these difficulties to fetch export orders.

THE GARMENT COSTING:

The garment costing details the cost of every item attributable to the production of a particular garment. The sum of these
cost plus the profit margin is the selling price which the company will quote to customers. While each company has its own
method of preparing costing, generally the components of a costing are grouped under four headings: direct materials, direct
labour, factory overhead & general overhead.

Direct Materials
Direct materials are all the materials and trimmings which go into the construction and finish of the garment. Typically, these
materials would include cloth, lining, fusible, zips pads, tapes, labels, tickets, hangers and packaging materials.

Direct Labor
This covers the cost of all the labour directly involved in producing the garment and could include cutting, fusing, regular
sewing, special machine operations, pressing, finishing, inspection and packing. Labour of all types and grade has a direct
overhead which include holiday pay, sick pay, fringe benefits and the statutory payments made by the employer for each
employee. This is usually expressed as a percentage of salary and when this percentage is added to the employee’s wage, it
becomes the basis for calculating direct labour costs.

Factory Overhead
There are different methods of calculating the factory overhead, but most of them use a combination of the following three
elements.
• Indirect labour: This covers every person in the factory who does not directly perform a production operation such as
managers, supervisors, engineers, store personnel, clerks, maintenance staff, porters, canteen staff, security, and cleaners etc.
• Expenses: Included in this element is every fixed and variable expenses incurred in operating the factory, such as rent,
rates, utilities, insurance, depreciation, maintenance, air conditioning and the various types of energy generation required by
a clothing factory.
• Indirect materials: Also known as consumables, this element contains all the materials not directly connected to the
makeup of a garment. Some of the typical items involved are office materials, spare parts, marker paper, maintenance
materials, chalk & pins.
The total of these three elements is the factory overhead and because it cannot be conveniently applied to specific cost units;
it is generally expressed as a percentage of the direct labour costs.

Stages in Costing
The design department documents relevant information such as the price of buttons and material and estimates the average
quantity of fabric required per garment. The designer has a great deal of influence on the costing through the selection of
fabric, trims, and design details within the garment. Once the sample garment has been made the sample machinist list every
separate process involved and hands this over to a work study engineer (sometimes called a garment technician) who
estimates how long a garment will take, on average to complete in bulk production. Because every machinist works at
varying speeds the time can only ever be estimated, based on numerous time studies which the work study engineer has
complied from observing machinist on previous production runs. The average time which a machinist is expected to take to
sew a garment is estimated in what are known as standard ‘minutes.

The estimated standard minutes are then communicated to the costing department, where they are combined with the
information from design, and a computer program is used to calculate a suggested price. The sales representative analyses
the costing sheet and presents an initial price to the buyer. This price is based on the estimated production and material costs
but is also influenced by how much the customer is expected to pay. The salesperson negotiates with the buyer until a price
is finalized which is agreeable to both parties. The final selling price from the manufacturer to the retailer is referred to as
the cost price.

Methods of Costing
It is that cost is the deciding factor for acceptance of orders either for domestic or for export market. The production cost of
a garment must be determined to set the whole sale price, the price that retailers pay for goods that they purchase from
manufacturers. The costing is generally done in two stages as follows:
• Pre costing: The pre cost is an estimate made before the garment is adopted into the line. From the outset, the designer
must keep fabric, trim and labour cost for each garment within the limits set by the company for a particular line’s price
range. The designers usually keep the record of all the material cost on a designer worksheet. Then, the costing department
can roughly estimate the wholesale cost to determine whether the garment fits into the line’s price structure.
• Final costing: This is an exact calculation by the costing or import department, using actual figures for materials and
labour. The costing department uses the designer’s work sheet, a prototype garment, and the production pattern to analyse
materials and construction step by step. The designer may be consulted for information or to recommend more practical or
cheaper ways to make the garment. Labour cost may be calculated by time studies. In this case, engineers time each operation,
such as closing a seam, or how long it takes to make an entire garment, or a prototype may be sent to a contractor for costing.
A detailed cost analysis is made for each garment, including expenses for fabric, trims, cutting, labour, overhead, sales
commission, and manufacturer’s profit. The final cost is plotted on a cost sheet.

The Cost Sheet

The Detailed analysis of the costing is given below:

• Materials: First the total amount of fabric needed for the garment is estimated and then multiplied by its cost per meter
to find the total material cost per garment. Since higher volume allows more flexibility in making the marker and thus a
more efficient use of fabric, material cost is somewhat reduced for high volume styles, while extra expenses have to be
allowed for low- volume styles.
• Trimmings: Unit costs are multiplied by the amount of trimmings needed for each garment. The sum of these figures
is the total trimmings cost per garment.

• Production, patternmaking, grading & marking: Most companies allow for these costs in general overhead that also
covers the design department. However, if these functions are performed outside by pattern service, the total cost is divided
by the no. of units they estimate will be cut to find the cost per unit. If the garment is later re cut, there will be no new cost
for patterns and grading.
• Spreading & cutting: The cost for cutting done in house is based on the cutters hourly wage multiplied by the no. of
hours it takes to cut the style and divided by the no of units cut. If the cutting is done by a contractor, the total negotiated
cutting cost is figured on the no of garments to be cut. The contractor adds his/her fee to this amount.
• Assembly Construction: Labour includes all sewing including finishing. Some components break down labour costs
by each operation. Information for this kind of costing structure is gathered through time and motion efficiency studies. The
cost of each operation such as the costing of a shoulder seam, is determined to figure the total cost for a whole garment, the
individual operation cost is combined. Other manufacturers calculate the average time, it takes to sew the whole garment
and multiply that by the workers hourly rate. If the garment is made by a contractor, the contractor fee must be added to
production cost.
• Freight: The cost of shipping completed garment from the contractor to the manufacturer must be calculated. For
domestic shipments, the garments are usually trucked. If the garments are imported, then a percentage of the air or sea fright
cost must be added to the cost of each garment. Obviously, the sea transportation is cheaper and therefore, adds less cost to
the garment, but valuable lead time is for forfeited. The cost of shipping garments to the retailer is generally paid by the
retail store. But manufacturers must pay air freight if they are late with their delivery.
• Additional Cost for imported garments: This includes the quota charge and import duty and agent fee.
• Duty and Quota: In the case of imports, there are additional cost for duty and quota. These are included if a ‘package’
price is negotiated.
Costing is undertaken by costing department and staff working in close conjunction with the company cost accountant and
receiving his technical instruction from the designer.

FINANCIAL ASPECTS:
(A) Fixed Capital
• Land &Building:
Land & Building: Rented (per month) Rs. X

Sl. Machinery Description Qty Rate Value

No Nos (Rs.) (In Rs.)
.
1. Single Needle Stitching Machine X X X
2. Double Needle Feed of the Arm Machine X X X
3. Five Needle Over-lock Machine X X X
4. Cutting Machine 8” X X X
5. Button Holing & Stitching MB-1377 Machine X X X
6. Equipment etc. X X X
Total:-

(B) Working Capital (per month)

Staff &Labor (Per Month):

Sl. No. Personnel No. Rate (Rs.) Amount (In Rs.)
1. Manager X X X
2. Supervisor X X X
3. Cutter X X X
4. Pressman X X X
5. Skilled Workers X X X
6. Semi-Skilled Workers X X X
Total: X
Perquisites @ 20% X
Grand Total X
• Raw Material (Per Month):

Sl. Item description Qty. Rate (Rs.) Value

No Unit (In Rs.)
1. Cotton Fabric X X X
2. Sewing Thread, Washing, Packing materials etc. X X X

Total: X

• Utilities: (Per Month)

1. Electricity Rs. X
2. Fuel Rs. X
Total: - Rs. X

• Other Contingent Expense (Per Month):

1. Rent Rs. X
2. Postage Rs. X
3. Stationery Rs. X
4. Repair and maintenance Rs. X
5. Transport Rs. X
6. Insurance Rs. X
7. Telephone Rs. X
8. Miscellaneous Expenses Rs. X
Total: Rs. X

• Total Recurring expenses (per month):

i. Staff & Labour Rs. X

ii. Raw Material Rs. X
iii. Utilities Rs. X
iv. Other contingent expenses Rs. X
Total: Rs. X

(C) TOTAL CAPITAL INVESTMENT:

1. Machinery & Equipment Rs. X

2. Working Capital for 3 months Rs. X
Total: Rs. X

MACHINERY UTILISATION:
Capacity utilization of plant and machinery is considered as 75% of installed capacity. However, this can
be improved to 80% during 3rd year of production.
 FINANCIAL ASPECTS:
(1) Cost of Production (Per Annum)

1. Recurring Expenses Rs. X

2. Depreciation on Machinery @ 10% Rs. X
3. Interest on Total Investment @ 12% Rs. X
Total: Rs. X

(2) Turn Over (per year) by Sales

Products Quantity (Nos.) Rate/Pc. (Rs.) Value (Rs.)

Gents Casual Shirts X Rs. X
Total: Rs. X

(3) Net Profit (per year)

(Before Income Tax)

Sales Value (-) Cost of Production

(1) Net Profit Ratio:

Net profit X 100 / (Turn Over/Annum)

(4) Rate of Return on Investment:

(Net Profit/Total Capital Investment)

Annual Profit X 100 / Total Capital Investment

(1) Break Even Point/Analysis:

Fixed Cost (Per Annum):

1 Rent Rs. X
2 Total Depreciation Rs. X
3 Interest on Capital Investment @ 12% Rs. X
4 40% of Wages of Staff & Labour Rs. X
5 40% of other contingent expenses Rs. X
6 Insurance Rs. X
Total Fixed Cost: Rs. X

Break Even Point:

Fixed Cost X 100 / (Fixed Cost + Annual Profit)