WOVEN GARMENTS COSTING

Woven Garments costing: The first thing, we watch out what are the major break-up of the cost. We can notice easily the first is fabric cost followed by Accessories, then direct expenses such as embroidery, printing, dyeing, washing and thereafter the operation cost which is also known as cutting and making charges ( Known as CM/CMT). Besides this there will be commercial cost. Normally like a jobbing industry we speak cost order wise and style wise in garment industry.

Fabric and Accessories purchasing / procurement: Now-a-days invariably the buyers have their own vendors for the fabric purchase this does not give any choice to the manufacturer to buy at the lowest cost the right quality of fabric from a different source. The only advantage we get is when we quote to the buyer the price are not questioned or disputed for the supplier of fabric is an approved source on buyer’s point of view. Also if there is delay in supply we can request the buyer to pressurize the vendor to supply on an early date. Accessories are also similar to the fabric. These two categories of raw materials form nearly 65% or little more than that. This expenditure besides direct expenses (mentioned below) purely variable for it fluctuates according the production. The fabric if it is to be imported then the additional cost of freight and duty has to be born by the manufacturer. Invariably the duty element will not applicable if there is a corresponding export. Normally most of developing countries follow this principle to boost the balance of trade with other countries. Fabric consumption has to be worked out carefully and ordered with normally 3% addition to cover up the various process losses. This percentage also depends upon the nature of job and experience. The factors that influence the fabric consumption are shrinkage after washing and the cutting allowance and synchronizing the check fabrics.

Fabric consumption: The quantity of fabric which required producing ordered garments is called consumption. How much fabric is required to produce a garment, we can determine it through marker planning and mathematical system.

Marker Planning System: In this system the range of size, following six pieces of six sizes can be sorted out from size range of XS, S, M, L, XL and XXL. Besides these we can choose three pieces of three sizes or twelve pieces of twelve sizes according to our convenience.

Fig: 1

Fig:2

It depends on our intelligence and the size range; thereafter paper pattern (Figure – 2) can be made by grading to above garments as per measurement or specification sheet. Having made the paper pattern it should have to lay each parts of the paper pattern (Refer figure-2) on a marker paper of similar fabric width. After making the paper pattern if we measure marker paper to length wise, we will find an aggregate consumption of six pieces garment. If the aggregate is divided by six, we will find consumption of one piece garment. As such we can find a consumption of one dozen from the above system calculations.

Mathematical System: Whatever is fabric consumption of a garment or whatever the quantity of fabric is required to produce a garment is measured by minima and maxima length or width of each parts of each piece of garment and the area is calculated. It is a system of rough estimation.

Now-a-days AutoCAD is used to work out accurate fabric consumption. The pattern cutting (Refer Figure-3) is influenced by the factors like weight, thickness, shear, drape and stretch which should be taken care off.

Direct Expenses: These costs can be ascertained calling quotes from various vendors. If done in-house it should form part of operational cost. Now-a-days these factories also come under buyer’s purview like that of fabric. We should ensure whether we have an approved vendor by buyer or not. Some times buyers do have compliance program before giving an approval to do necessary operation which should be taken care off. The expenditures that come under this category are: embroidery, printing, dyeing and washing and sub-contract (sewing & finishing) expenses. In other words all the expenditures other than in-house will be considered.

Production Overhead and applied rate: This expenditure are more or less direct expenditure but negligible. The main expenditures are needles, spare parts for the machines, etc. The applied rate is ascertained normally as a percentage on total purchase. The total purchases can be estimated for year based on the previous year experience or based on the current sales budget. There is no hard and fast rule that we should follow this method. We can choose any other suitable method depending upon nature, circumstances and availability of data. A specimen production overhead rate is arrived; however we could not get the permission of principal for reporting the actual data and arbitrary figures have been given. (Refer Figure-4)

Operation cost: The operational cost can be further sub-divided into cutting, sewing and finishing operations presuming that the other direst costs are done outside. If any of direct cost is done in-house it can also be defined as an operation and the cost has to be worked out; but the cost should be lower than the outsider’s cost and in exceptional case it can be higher. The operational costs normally come under purview of compliance of the buyer and any infringement of any of the rules there is possibility of losing the Order and gets permanently black listed by the buyer.

According to the normal costing principles all the expenditure relating to operations such as cutting, sewing and finishing which could be directly identified to each operation has to be identified. Wages for operators, salaries to quality inspectors, helpers, ironmen, line controllers and supervisors can be done in that manner.

Expenses requiring allocation should be done according to the costing principles to the respective three major operation centers cutting, sewing and finishing. Some of them are:

1. Insurance expenses allocated according to the policy nature and based on the capital investment made.

2. Canteen expenses according to number of employees.

3. Utility expenses representing normally gas and electricity based on consumption. If the consumption is not available then based on technical observation allocation has to be done.

4. Depreciation according to the capital outlay is allocated.

This expenditure further bifurcated into cash and non-cash expenditure. A specimen expenses budget is given. (Refer in figure-5) As reported elsewhere we could not get the permission of principal for reporting the actual data and arbitrary figures have been given.

Now the point is what should be denominator for arriving rate per operation. The international practice is SAM (Standard Allocated Minutes). This normally ascertained at the time of quoting itself through a pitch diagram identifying the bottle neck operations and balancing operations by increasing the number of operators and arrive a standard hourly production. This is purely industrial engineering subject which is out of the scope of this paper. Again there are three different SAM for different operations. But the major operations pertain to sewing which can be base for all the other operations.

While applying rates we can further split the same into cash and non-cash rates so that data will useful for decision taking purpose. Please refer Figure-5. As reported elsewhere we could not get the permission of principal for reporting the actual data and arbitrary figures have been given.

Overhead data collection and applied rate: All the rest of expenditure and expenditure unallocated will be treated as overhead. This expenditure further bifurcated into cash and non-cash expenditure. A specimen expenses budget is given (Refer Figure-6). As reported elsewhere we could not get the permission of principal for reporting the actual data and arbitrary figures have been given.

Here again deciding the denominator is very important. Very Sam considered for deriving the operation cost can be used. Or sales turnover can be used because the nature of expenditure is fixed. Again it is matter of convenience and practicality to be followed.

Cost Sheet: With above we can apply to particular order and see the cost and profit we can make can be ascertained. A specimen cost sheet is given refer figure-6.

Fig: 6

Intricate points to be observed:

1. Most of expenses are directly identifiable; therefore the vulnerability of allocation of fixed expenses is kept as low as possible.
2. The fixed overhead expenses given in figure-5, if possible should be identified to the order and be treated as direct expenditure.
3. The fixed overheads should be within the industrial norms (this has to be identified from outside sources) if not survival becomes vulnerable.
4. The bottom line of the cost sheet shows the maximum level we can go down that is foregoing cash profit or non cash recovery.
5. The Garments industry is migratory in nature for cost that matters is so flexible and requires a constant vigil in keeping tract of.
6. The cost sheet should be useful for decision taking as well as reporting the profitability. Being a labor oriented industry the machine depreciation is not treated as variable expenditure deliberately.
7. Each merchandiser on completion of the order shall prepare an evaluation report to identify the hidden cost which normally included in the overhead element so that it serves as guideline for him as well as the management for the subsequent job orders.