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Costing

The key elements of costing in the apparel industry include material costs, labor costs, and expenses. Material costs include the costs of raw materials and components. Labor costs are divided into direct labor costs for workers involved in production and indirect labor costs for support staff. Expenses include direct expenses like machinery rental and indirect expenses like repairs and insurance. These costs are used to calculate prime cost (direct materials + direct labor + direct expenses), overhead (indirect costs), cost of production, cost of sales, and ultimately the selling price of apparel products. Understanding these different cost elements allows for effective budgeting, cost control, and price setting within apparel businesses.

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225 views

Costing

The key elements of costing in the apparel industry include material costs, labor costs, and expenses. Material costs include the costs of raw materials and components. Labor costs are divided into direct labor costs for workers involved in production and indirect labor costs for support staff. Expenses include direct expenses like machinery rental and indirect expenses like repairs and insurance. These costs are used to calculate prime cost (direct materials + direct labor + direct expenses), overhead (indirect costs), cost of production, cost of sales, and ultimately the selling price of apparel products. Understanding these different cost elements allows for effective budgeting, cost control, and price setting within apparel businesses.

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Elements of Costing in Apparel Industry

in Merchandising

Costing of the apparel and textile product is a complex problem, it involves numerous number
of activities associated with each product. The technique and methods to be used for
ascertainment of cost vary from unit to unit depending upon the nature of the industry, type of
the product, method of production and the meaning or the sense in which the term cost is used.

Apparel costing is useful for budgeting and for setting standards for measuring efficiencies. It
allows the best use of limited resources and is an instrument of management control. It helps in
cost audit, and price determination. In this article I will explain different elements of costing in
garments manufacturing.

Elements of Costing:
The material, labor and expenses are the fundamental elements of cost. The Figure-1 explains the
elements involved in the basic costing process.

Figure-1: Elements of cost


All process of above picture are described below:

Material cost:
It is the cost of commodities supplied to an undertaking. This includes, cost of procurements,
freight inward, taxes and insurances. These activities are included in material cost because; they
are directly attributable for the acquisition of material. Here the material can be specified as any
substance from which the item is made. It might be in a crude state as raw material,
e.g., fiber for fabric and raw chemicals for dyeing, and so on. Additionally it may be also be in a
made state – parts, e.g., buttons, zippers, and so on, materials can be direct and indirect.
You may also like: List of Commonly Used Trims and Accessories in Apparel Industry

Direct material:
All materials which become an integral part of the finished product, the cost of which are
directly and completely assigned to the specific physical units and charged to the prime cost, are
known as direct material. The following are some of the materials that fall under this category:

 Materials which are specifically purchased, acquired or produced for a particular job,
order or process.
 Primary packing material (e.g., carton, wrapping, cardboard, etc.).
 Materials passing from one process to another as inputs.
Indirect material:
All materials, which cannot be conveniently assigned to specific physical units, are termed as
“indirect material”. Such commodities do not form part of the finished products. These items will
not be a part of the finished product (physically). Consumables, lubrication oil, stationery and
spare parts for the machinery are termed as indirect materials.

Labour cost:
Human efforts used for conversion of materials into finished products or doing various jobs in
the business are known as labour. Payment made towards the labour is called labour cost. It can
also be direct and indirect.

Direct labour:
Direct labour cost is the wages, salary, or bonuses, or commission paid to the workers or
employees who directly involved in converting the raw material into the finished product. The
wages paid to skilled and unskilled workers for manual work or mechanical work for operating
machinery, which can be specifically allocated to a particular unit of production, is known as
direct wages or direct labour cost.

Indirect labour:
Labour employed to perform work which is not a part of manufacturing the end product but only
to assist the product or operations are known as indirect labour or those engaged for office work,
selling and distribution activities are known as “indirect labour”. The wages paid to such workers
are known as “indirect wages”or indirect labour cost.

Example: Salary paid to the driver of the delivery van used for distribution of the product.

Expenses:
All expenditures other than material and labour incurred for manufacturing a product or
rendering service are termed as “expenses”. Expenses may be direct or indirect.

Direct expenses:
Expenses which are specifically incurred and can be directly and wholly allocated to a particular
product, job or service are termed as “direct expenses”.

Examples of such expense are: hire charges of special machinery hired for the fob, carriage
inward, royalty, cost of special and specific drawings, etc.

Indirect expenses:
All expenses excluding indirect material and indirect labour, which cannot be directly and
wholly attributed to a particular product, job or service, are termed as “indirect expenses”. Some
examples of such expenses are: repairs to machinery, insurance, lighting and rent of the
buildings.

Prime cost:
The direct cost of a commodity in terms of the materials and labour involved in its production,
excluding fixed costs.

Prime cost = Direct material + Direct labour + Direct expenses

Overheads:
Indirect expenses are called overheads, which include material and labour.

Overheads = Indirect material + Indirect labours + Indirect expenses

Overheads are classified as:


 Production or manufacturing overheads – Connected with factory production
function like indirect material labour,etc.
 Administrative expenses – Indirect expenditures incurred in general administrative
function, they don’t have any direct connection with production or sales activity. For
examplestationeries used, sweeping brooms, salary of a peon, etc.
 Selling expenses – It is the cost of promoting the sales and retaining the customers. For
exampleadvertisement and gifts, etc.
 Distribution expenses – All the expenses incurred from the time of the production
completion to the time it reaches its destination. For example packing material, salary of
drivers and insurance of the goods.
 Research and development expenses – Any expenses associated with the research and
development of a company’s goods or services.
Here,
 Factory cost = Prime cost + Factory overheads
 Cost of production = Factory cost + Office and administrative overheads
 Sales cost = Cost of production + Selling and distribution overheads
 Selling price = Cost of sales + Profit
 Cost/ unit = Selling price / Total production.
References:
1. Apparel Merchandising by R. Rathinamoorthy and R. Surjit
2. Apparel Manufacturing Technology by T. Karthik, P. Ganesan, D. Gopalakrishnan
3. http://content.inflibnet.ac.in/

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