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Cost Analysis in Garment Industry

Article · September 2015

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Anshu Singh Choudhary

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International Journal of Recent Advances in Multidisciplinary Research

Vol. xx, Issue xx, pp.xxx-xxx, September, 2015

REVIEW ARTICLE
COST ANALYSIS IN GARMENT INDUSTRY
*Anshu Singh Choudhary
ASFD and T, Amity University Madhya Pradesh

ARTICLE INFO ABSTRACT

Article History: Cost analysis in garment Manufacturing, as the topic implies, deals with the work of costing a
Received xxx January, 2015 garment which involves the expenses for fabric, trims, cuttings, labor, overhead, sales commission,
Received in revised form manufacturer’s profit & transportation. The production cost of the garment must be determined in
xxxxx, 2015 order to set the wholesale price, the price that retailers’ pay for goods that they purchase from
Accepted xxxxx, 2015 manufacturers.There are two types of costing. The first one is pre cost. Pre cost is the estimate of the
Published online xxxxxx, 2015 garment before it is adopted into the line. The designs must keep the fabric, trim and the labor cost for
each garment within the limit set by the company for a particular line price range. Another method is
Keywords:
Final cost. It is the exact calculation by the costing or import department using actual figures for
materials and labor. The costing Department uses the designer’s worksheet or a prototype garment
and the production pattern to analyze 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.
Labor 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 Direct Materials

Direct materials are all the materials and trimmings which go
There has been a tremendous growth in the production of into the construction and finish of the garment. Typically, these
readymade garments in our country. The Garment sector materials would include cloth, lining, fusible, zips pads, tapes,
employs about 1.7 million people catering to the domestic and labels, tickets, hangers and packaging materials.
export markets. The post GATT era removal of quotas in a
phased manner will give larger market access to our garments Direct Labor
in the quota countries. Viewed from this angle, scope for our
garment export will be better. At the same time stiff This cover the cost of all the labor directly involved in
competition from other developing counties like China, producing the garment and could include cutting, fusing,
Pakistan, Thailand etc. will have to be reckoned with. It is regular sewing, special machine operations, pressing, finishing,
therefore, of paramount importance that government and inspection and packing. Labor of all types and grade has a
industry have to formulate a concrete program for direct overhead which include holiday pay, sick pay, fringe
modernization, technology up gradation etc. The cost per unit benefits etc and the statutory payments made by the employer
of the garment produce in our country is considered as higher for each employee. This is usually expressed as a percentage of
than our competitors nations mainly due to lower output, salary and when this percentage is added to the employee’s
inadequate training, lack of infrastructure etc. however now a wage, it becomes the basis for calculating direct labor costs.
days the awareness about these things has been increased Factory Overhead
among the exporters and they are trying to overcome these
difficulties in order to fetch export orders. There are different methods of calculating the factory overhead,
but most of them use a combination of the following three
The Garment costing elements.
 Indirect labor: This covers every person in the factory
The garment costing details the cost of every item attributable
who does not directly perform a production operation such
to the production of a particular garment. The sum of these cost
as managers, supervisors, engineers, store personnel, clerks,
plus the profit margin is the selling price which the company
maintenance staff, porters, canteen staff, security and
will quote to customers. While each company has its own
cleaners etc.
method of preparing costing, generally the components of a
costing are grouped under four headings: direct materials, direct  Expenses: Included in this element is every fixed and
labor, factory overhead & general overhead. variable expenses incurred in operating the factory, such as
rent, rates, utilities, insurance, depreciation, maintenance,
air conditioning and the various types of energy generation
*Corresponding author: Anshu Singh Choudhary,
ASFD&T, Amity University Madhya Pradesh, India. required by a clothing factory.
 Indirect materials: Also known as consumables, this analyze materials and construction step by step. The
element contains all the materials not directly connected to designer may be consulted for information or to
the makeup of a garment. Some of the typical items recommend more practical or cheaper ways to make the
involved are office materials, spare parts, marker paper, garment. Labor cost may be calculated by time studies. In
maintenance materials, chalk & pins. this case, engineers time each operation, such as closing a
seam, or how long it takes to make an entire garment or a
The total of these three elements is the factory overhead and prototype may be sent to a contractor for costing. A
because it cannot be conviently applied to specific cost units; it detailed cost analysis is made for each garment, including
is generally expressed as a percentage of the direct labor costs. expenses for fabric, trims, cutting, labour, overhead, sales
commission, and manufacturer’s profit. The final cost is
Stages in Costing plotted on a cost sheet.

The design department documents relevant information such as The Cost Sheet
the price of buttons and material, and estimates the average
quantity of fabric required per garment. The designer has a The following Table 1 shows the split-up of the cost in the
great deal of influence on the costing through the selection of manufacturer of a garment.
fabric, trims and design details within the garment. Once the
Table 1. Cost Sheet
sample garment has been made the sample machinist list every
separate process involved and hands this over to a work study Direct Cost Amount Average
engineer (sometimes called a garment technician) who (Rs) (%)
estimates how long a garment will take , on average to Fabric (Cost Depends on quality purchased) 2 90 30
complete in bulk production. Because every machinist works at mtrs @Rs 45/- per meter
varying speeds the time can only ever be estimated, based on Trimmings – Buttons, Collar cloth etc 30 10
Labor (Cost depends on no. of garments sewed) 60 20
numerous time studies which the work study engineer has Total Direct Cost 180 60
complied from observing machinist on previous production Indirect Cost
runs. The average time which a machinist is expected to take to Design staff salaries , sample fabric etc 45 15
sew a garment is estimated in what are known as standard General administrative overhead; office salaries, 45 15
rent, insurance, utilities etc.
‘minutes’. Sales commission 15 5
Total indirect cost 105 35
The estimated standard minutes are then communicated to the Total Cost 285 95
costing department, where they are combined with the Profit Margin 15 5
Whole sale Price of the garment 300 100
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 The Detailed analysis of the costing is given below in detail:
price is based on the estimated production and material costs
but is also influenced by how much the customer is expected to  Materials: First the total amount of fabric needed for the
pay. The salesperson negotiates with the buyer until a price is garment is estimated and then multiplied by its cost per
finalized which is agreeable to both parties. The final selling meter to find the total material cost per garment. Since
price from the manufacturer to the retailer is referred to as the higher volume allows more flexibility in making the marker
cost price. and thus a more efficient use of fabric, material cost is
somewhat reduced for high volume styles, while extra
Methods of Costing expenses has to be allowed for low- volume styles.
 Trimmings: Unit costs are multiplied by the amount of
It is needless to say that cost is the deciding factor for trimmings needed for each garment. The sum of these
acceptance of orders either for domestic or for export market. figures is the total trimmings cost per garment.
The production cost of a garment must be determined in order
to set the whole sale price, the price that retailers pay for goods  Production, patternmaking, grading & marking: Most
that they purchase from manufacturers. The costing is generally companies allow for these costs in general overhead that
done in two stages as follows: also covers the design department. However if these
functions are performed outside by pattern service, the total
 Pre costing: The pre cost is an estimate made before the cost is divided by the no. of units they estimate will be cut
garment is adopted into the line. From the outset, the to find the cost per unit. If the garment is later re cut there
designer must keep fabric, trim and labor cost for each will be no new cost for patterns and grading.
garment within the limits set by the company for a  Spreading & cutting: The cost for cutting done in house is
particular line’s price range. The designers usually keep the based on the cutters hourly wage multiplied by the no. of
record of all the material cost on a designer worksheet. hours it take to cut the style and divided by the no of units
Then, the costing department can roughly estimate the cut. If the cutting is done by a contractor, the total
wholesale cost to determine whether the garment fits into negotiated cutting cost is figured on the no of garments to
the line’s price structure. be cut. The contractor adds his/her fee to this amount.
 Final costing: This is an exact calculation by the costing or  Assembly Construction: Labor includes all sewing
import department, using actual figures for materials and including finishing. Some components break down labor
labor. The costing department uses the designer’s work costs by each operation. Information for this kind of costing
sheet, a prototype garment, and the production pattern to structure is gathered through time and motion efficiency
 studies. The cost of each operation such as the costing of a  Duty and Quota: In the case of imports, there are
shoulder seam, is determined to figure the total cost for a additional cost for duty and quota. These are included if a
whole garment, the individual operation cost are combined. ‘package’ price is negotiated.
Others manufacturers calculate the average time, it takes to
sew the whole garment and multiply that by the workers Costing is undertaken by costing department and staff working
hourly rate. If the garment is made by a contractor, the in close conjunction with the company cost accountant and
contractor fee must be added to production cost. receiving his technical instruction from the designer.
 Freight: The cost of shipping completed garment from the
contractor to the manufacturer must be calculated. For REFRENCES
domestic shipments, the garments are usually trucked. If the
garments are imported, then a %ge of the air or sea fright Bheda, R., 2002. Productivity in the Indian Apparel Industry:
cost must be added to the cost of each garment. Obviously, Paradigms and Paragons, Journal of Textile and Apparel,
the sea transportation is cheaper and therefore, adds less Technology and Management, Vol. 2, Issue 3
cost to the garment, but valuable lead time is for forfeited. Birnbaum D., 2008. Crisis in the 21st Century Garment
The cost of shipping garments to the retailer is generally Industry and Breakthrough Unified Strategies, New York:
paid by the retail store. But manufacturers must pay air FashionIndex
freight if they are late with their delivery. www.indiaretailbiz.com
 Additional Cost for imported garments: This includes www.spencersretail.com
the quota charge and import duty and agent fee.

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