Calculate Cost Estimates for

Fashion Products

By Alemnew Sisay

For level four(4)

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Calculate Cost Estimates for Fashion Products

• Cost typically can be defined as’ the economic

value placed upon the resources consumed to make a
• product.’
Costing the of estimating and
is process the then of garment,a
producing
determining total cost the of materials, labour
and transportation ascost
including well as the general expenses of
the operating the business.
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• Costing is done mainly for two purposes.
Pricing of the garment: If manufacturer selling the
garments directly to the end consumers then it’s
very important to estimate the cost very accurately.
Pricing of the garment can be done by
manufacturing cost added with estimated mark-up
or profit % to it.

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Order acceptance: If manufacturer is exporting the
garment, the costing is base of the business. On the
basis of cost of manufacturing including wages,
operating expenses and transportation and freight
charges, and profit margin of company,
merchandiser claims the cost of unit garment. With
this cost merchandiser negotiates with buyer and
decides whether to accept the order or not.

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• In order to do perfect garment costing, one
must know about all the activities including
purchase of fabrics, sewing, packing,
transport, overheads, etc. and also about
their costs, procedures, advantages and
risk factors.

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 Factors to be considered
when costing
Factors to be considered when costing Fashion
Products May include:
 variable costs, e.g. fabric and labour
 fixed costs, e.g. overheads
 profit
Market forces
Market forces for Fashion Products May
include:
 market demand for fashion labels,
e.g. known versus unknown
designer
 Costs
Involved in producing fashion products may
include: -
 fabric
 Trims
 labour
 overheads

Hidden costs
May include:
• sample garments not being included in costing
of bulk garments
 Labour
Labour involved in fashion product production
may include: -
 designers
 machinists and sample machinists
 cutters
 marker makers
 patternmakers
 quality controllers
 pressers
 packaging
 marketing and sales
 transportation
 Different methods of utilizing labour
May include:
cut, make and trim (CMT)
subcontractors
offshore production
 Cost components
• Cost=Total amount of money invested in a product.

• Price=Amount of money asked /received in ex-change

for a product.

• Profit = Price- cost

• Revenue = Total of all receipts from the sale of

company’s product during a stated period.

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 Cost components
• Costing = Process of estimating the total resource
investment required to merchandise, produce and
market a product.

• Pricing = Process of determining the exchange value of

goods that are made available for sale.

It is based on data produced in costing process, value

customers place on a product & the competition in the
market.

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 Direct Costs
Direct material = Actual cost of the material
that will make up the finished product.
Direct Labor = Wages cost of those employees
who actually manufacture the finished product.
Direct Expenses = Without which a
specific product could not be made.
DM+DL+DE= PRIME COST

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 Indirect Costs
Indirect materials = Material used in factory
which do not form a part of the finished product.
Indirect Labor = Wages of employees who work
in the factory but do not form a part of the
finished product.
Indirect Expenses = All other factory expenses.

IM+IL+IE=FACTORY OVERHEADS
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• DM+DL+DE= PRIME COST

• IM+IL+IE=FACTORY OVERHEADS

• P.C + F. O/H = PRODUCTION COST

• PRODUCTION COST + SELLING DISTRIBUTION

COST + ADMIN/FINANCE COST = TOTAL COST

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 Fixed & Variable Costs
• FC = Costs that do not get affected by output of
business. E.g. Rent.
• VC = Costs which vary with output of business.

• Semi-variable costs = Contain elements of both

fixed and variable.

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 Manufacturing Costs
All expenses incurred in making a finished product
available.
Direct Materials = Fabric (shell, lining) , thread, trims etc
are Direct variable costs.
Direct Labor = Include wages of employees who work on
the product in the plant, including cutters, sewers and
finishers.
Indirect Labor = Work of these individuals is essential to
efficient manufacturing but none of them work directly on
the product. e.g personnel QCs, material handlers, 16
 Manufacturing Costs

Overheads (O/H)-Consist of variable and

non- variable indirect manufacturing costs.
NVC = rent, depreciation, insurance
,property, taxes.
Variable (O/H) costs = Machine parts,
repairs, marker paper, needles.
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 General Operating Expenses
• Also called administrative overheads.

• Indirect costs, which include the costs of operating the

general offices and departments that are not directly
involved with the product line but are essential to the
operation of the firm.

E.g. merchandising, marketing, accounts, secretarial,

managerial staff.

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 INDIRECT INDIRECT
DIRECT DIREC DIRECT INDIRECT EXPENSES
MATERIAL T EXPENSE LABOR
MATERIALS
S LABO S
R
FACTORY
PRIME COST OVERHEAD

PRODUCTION COST

SELLING AND
DISTRIBUTION
COST

ADMIN
AND
FINANCE

TOTAL COST 19
 DIRECT EXPENSES
• Expenses that are incurred without which a
specific product could not be made. They only
relate to that specific product.
Example:
Royalties i.e. a payment made to a designer
or made to use a specific motif on the garment.

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 Direct labor
The wages cost of those employees who actually manufacture the
finished product.
Any work that alters the composition, condition, conformation
(compliances) or construction of a product.
Any operation that advances a product towards its ultimate condition
for sale thereby adding to its value.
Important to calculate direct labor cost:
Direct labor cost per hour
Direct labor cost per item( SAM * Wages per Minute)
( SAH * Wages per Hour)
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 How are overheads divided among various
styles?

They are divided over estimated production

hours

Estimated total overheads

Estimated Production hours = O/h rate per
production hr.

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 Costing Sheet Components
May include:
 date  freight/shipping
 style/design number  packaging
 size  overheads
 fabrics/linings
 labels
 trims
 extras, eg pleating, embroidery  fabric swatch
 labour/CMT  trims
 flat trade sketch
The components on which cost of garment
depends is as follows
• Fabric
• Trims
• Cut Make & Trim charges
• Value added services: printing, embroidery,
washing, applique
• Testing of the garment
• Quality
• Transportation and logistics cost
• Profit of the manufacturing organization
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• The parameters that affect the garment cost
mostly are;
 Unit of Measurement,
 MOQ,
 Incoterms decided between raw material
vendor and garment manufacturer,
 order quantity, etc.

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Fabric:
• Fabric is generally the most significant factor in
costing of garment. Fabric accounts for 60 to
70% of the total cost of basic-styled garments .In
many cases, evaluating the quality and the
quantity of fabric consumed in the garment
indicates better than any other factor the cost of
producing it. The cost of fabric depends upon
the type of fabric is going to be utilized in the
garment.

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 Types of fabrics are:
• Woven/knitted fabric
• Power loom/automatic loom fabric
• Fibre/yarn/fabric dyed fabric
• Fibre content of fabric i.e. cotton,
wool, polyester, silk, blended fabric etc.
• Type of dyeing and finish used
• GSM/Weight of fabric.
• Type of yarn used i.e. ring spun, open ended,
or carded/combed etc.
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• UOM: Unit of Measurement (UOM) is
the quantity used as a standard of
measurement. The Unit of Measurement
for woven fabric is normally in meters or
yard, while knitted fabric measured in
Kilograms or ounces per square yard.

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• MOQ: Fabric Minimum Order Quantity (MOQ) is the
smallest quantity of a product that a fabric
manufacturer can supply.
• The MOQ depends on the type of fabric and on
capacity of vendor. The MOQ plays the important role
while ordering the fabric as it directly affects the cost
of garment.
• If the order of fabric is below the estimated MOQ
then vendor charges more cost as compared to
regular charges

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• Order quantity: The cost of fabric may vary
with the order quantity, more the order
quantity; cost of fabric can be optimised till
certain level. But, this is again depends on the
type of fabric required and fabric
manufacturer capacity along with negotiation
between fabric buyer and supplier.

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• Incoterms used: This factor makes the huge
difference in fabric cost. While importing the
fabric from another country merchandiser
need to deal with the supplier for delivery of
the fabric on the basis of incoterms like EXW,
FOB, CIF, etc. based on which it will be
decided that who will bear the cost of
transportation and risk.

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• No matter which incoterm is used but all the
cost needs to be charged to buyer. If fabric is
getting purchased by using EXW incoterm
then merchandiser needs to add the
transportation cost along with the
clearance charges along with custom the
fabric while calculating the garment price
cost. of

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• The cost of fabric can be calculated by following way
• Yarn cost + fabric manufacturing cost (knitting or
woven) + dyeing cost + finishing cost= total fabric
manufacturing cost
• Dyeing cost indicates that if fabric is yarn dyed or fibre
dyed or piece dyed respective cost will be added
depending upon fabric type. Finishing cost included
heat setting cost, normal finishing, compacting
(knitted fabric) etc.

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• Trims

• Trims include all materials other than

fabric used in the garment. For example
most garments have accessories such as
threads, buttons, zippers, labels, elastics
and miscellaneous items.

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• Quality and quantity of trims and labour
required to apply it on garment are
directly related to cost of garment. The
different trims have different UOM; even
same trim can have 2-3 different UOMs
that can be summarised as:

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Trims UOM

Thread 1000 meter tube,

2000/5000 Meter
Cone

Labels Unit
Zippers Unit
Buttons Gross (144 Units)
Polybag Unit , thickness is
measured in mm. or
gauge

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Carton Unit
Hand tags Unit
Shanks Gross
Rivets Unit
Lace 50 Meter
Hanger Unit
Tapes / Velcro 50 Meter or Kg.
Elastics 50 Meter

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• Thread: After fabric, thread is
another
component which needs to be
considered for calculating the cost
garments most. The consumption of
thread is calculated by IE department. of
It
is dependent upon the type of seam and
SPI.
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• While ordering the thread the operation break
down and number of sewing M/c for that
particular style should be taken in account.
Accordingly number of cones of thread needs to
order. In order to calculate thread consumption
special software’s are also available which gives
the accurate thread consumption.

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• Sometimes thread can be computed as while
preparing the sample, initial weight of thread
cone is measured and after preparation of sample
again weight measured. The difference of weight
gives how much thread is consumed, and
converting it into meters will give actual thread
consumption for that particular garment. While
ordering thread it’s important to consider the
wastage, normally which is 10-15%.

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• Labels: Several labels are used in garment i.e.
main label, care label, content label, the cost of
label depends upon make of label i.e. fibre
content, printed, jacquard label, size of labels,
colours used in label, etc. for a unit garment label
cost may not play a significant role but in case of
mass production it plays vital role. The other
factors that are important while ordering the
labels are MOQ, order quantity.

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• Zipper: zippers also has several types like
metallic zipper, nylon zipper etc. which plays
the drastic role in cost of zipper. Merchandiser
should be aware of the parameters of zipper
for accurate costing and negotiation. MOQ is
the parameter which affects the cost of zipper
considerably; at certain MOQ only zipper will
get at desired price.

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• Buttons: Buttons can be made up of different
types, nylon buttons, plastic buttons, acrylic
based buttons, wood, shell, metal. Every type
of button has its own MOQdecided
manufacturer by of button. Buttons are
purchased on gross with the line specified.
• 1 gross = 1 packet =144 buttons= 12 dozens

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• Polybags: The cost of poly bag is highly
dependent on thickness, dimension and raw
material used. The poly bag ordered in terms
of number of pieces. The cost of poly bag is
equally important as it give significant
difference when we consider the whole order
quantity.

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• Cartons: Same like poly bag cost of cartons are highly
dependent on material used and dimensions. Depending
upon these factors cost of cartons is decided, the UOM of
cartons generally is number of pieces while cost varies
with MOQ. These are procured based on the number of
plies, dimensions of the carton and GSM of the paper used
to make the carton. Generally the number of plies used in
carton box is 3, 7 and 9 ply. For example: 9 ply, 60 X 40
X40, 4 side calico, 1 side print and 180 GSM.

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• Hand tags: Hand tags or price tags are used as
packing material, the cost of hand tags are
dependent upon material used, printing on it,
and MOQ.
• Shanks and rivets: Generally these trims are
made up of metallic, the UOM of rivets and
shanks is gross and No. of pieces respectively. The
cost of shanks and rivets is dependent upon the
MOQ and material used.

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• Hangers: Hangers are made up of generally hard
plastics sometimes wood, the cost of hanger is depend
on material used, size, print and colour on it. Generally
transparent hangers are more costly than coloured
one.
• Tapes and Velcro: Tapes are purchased based on the
width and mobilon tapes are purchased in kg. Thus
increase in width by 100% increases the cost by 80%.
For satin tapes increase in width by 150% increases the
cost by 250%. Another factor that affects cost is MOQ.
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• Trims charges are generally calculated as for the
different type of sourcing and mode of transportation.
• If shipment is by air then the trim cost + 15-25% more
cost is quoted to buyer, depending on the freight
charges
• If shipment is by sea then trim cost + 10-15% more cost
is quoted to buyer depending upon freight charges
• If domestic sourcing is there then, the local taxes.
Transportation charges is bound to add in the total trim
cost.

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• CMT cost:
COST OF MAKING
• The cost of making done "in house" is based
on the total cost per hour multiplied by the
number of hours it takes to make the style and
divided by the number of units produced if
the making is done by a contractor; the
contractor adds profit on to this amount.

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• Labour cost per minute (Monthly
= salary ofan minutes
operators/Total
available in the month) at 100%
efficiency
CM cost = (SAM of the garment * Minute
cost of the labour)/Line efficiency (%)

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• Value added services:

• This is cost added to of special process like

embroidery, printing, washing used to impart
the type of look buyers wants. These are
associated cost of garment manufacturing are
wet processing chemicals, washing and
contracted operations.

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 Example of garment costing:
• The example of garment cost is given by assuming the
following dimensions for polo neck T-shirt,
• no. of pieces = 4000,
• salary of the operator =6000 =300$/month
• no. of working days = 26,
• line efficiency considered= 50%,
• sewing SAM= 15 min.,
• Cutting SAM= min. 1$=20ETB
7 Chest = 60 cm,
• Length (HSP to waist) = 75
cm, = 25 cm
• Fabric
Sleeve used is 2/60s 100% cotton S/J fabric. GSM is 180
length

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• CMT charges are calculated as:
Total available capacity per month (in minute) = 26 working days*8
hours/day*60=12,480 minutes
Labour cost per minute = (Monthly salary of an operators/Total
minutes available in the month) at 100% efficiency
= 6000/12480
=0.480 Rs.
• Sewing cost = (SAM of the garment * Minute cost of the
labour)/Line efficiency (%)
=15* 0.480/50
=0.288$

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• Cutting cost = (SAM of cutting * Minute cost of the
labour)/cutting efficiency (%)
= 7*0.480/50
=0.134$
Trimming cost is considered as 0.06$as it depends
upon how many operators are there for trimming.
Production cost of garment (CMT) = sewing cost+
cutting cost + trimming cost
= 0.288+0.134+0.06
= 0.482$

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Fabric cost + 7% duty 1.97$
Trim cost + 7% duty 0.3$
Fabric and 0.06$
trims transportation
charges
Testing + 0.2$
inspection
charges
Commission on 0.08$
foreign exchange
Buying 0.16$
house commission
Rejection 5% 0.16$
Value addition services 0.2$
CMT 0.482$
Margin 0.5$
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Total FOB cost 4.11$
 Items Consump UOM* Rate ($) Amount Remarks
tion ($)
1 2/60s 0.224 KGs 6.5 1.45
single jersey

2 Cuff and 0.08 KGs 5 0.4

collar
ribs

3 Sewing thread 150 Meters 0.08 approx.

4 Buttons 3 Gross 0.04 approx.

5 Main label 1 Unit 0.02 approx.

6 Care label 1 Unit 0.02 approx.

7 Hang Tags 1 Unit 0.06 approx.

8 Price Tags 1 Unit 0.04 approx.

9 Poly bags 1 Unit 0.02 approx.

Total Cost 2.13

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