Garment Costing

Minnie Bastin
Knitwear Design IIIrd Year VI Semester
National Institute of Fashion Technology - Chennai
 Introduction to costing

 Cost components
 Introduction to costing tools
 Costing techniques in fashion industry
 Cost process flow
 Costing sheet
 Calculation of Gmt/Kg ration
 Cost Components
Cost can be defined as ‘the economic value placed upon
the resources consumed to make a product’.
Cost = Total amount of money invested in a
product
Price = Amount of money asked/received in
exchange for a product
Profit = Price – Cost
Revenue = Total of all receipts from the sale of
company’s product during a stated period
 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.
 Retail Price
Retail price can be defined as ‘the total price charged
for a product sold to a customer, which includes the
manufacturer’s cost plus a retail markup’.

Retail Price = FOB price + Cost of Freight/Insurance

+ Import Duty + Cost of distribution +
Cost of managing a store + Profit
Margin.

The price of a good or product when it is sold to the end

user for consumption, not for resale through a third
party distribution channel.
 Direct Costs
Direct Material (DM) = Actual cost of the material that
will make up the finished product.
Direct Labour (DL) = Wages cost of those employees
who actually manufacture the
finished product.
Direct Expenses (DE) = Without which a specific
product could not be made.

DM + DL + DE = PRIME COST
 Indirect Costs
Indirect Material (IM) = Material used in factory
which do not form a part of the
finished product.
Indirect Labour (IL) = Wages of employees who
work in the factory but do not
form a part of the finished
product.
Indirect Expenses (IE) = All other factory expenses.

IM + IL + IE = FACTORY OVERHEADS
 Indirect Costs

 DM + DL + DE = PRIME COST (P.C.)

 IM + IL + IE = FACTORY OVERHEADS (F. O/H)

 P.C. + F. O/H = PRODUCTION COST

 PRODUCTION COST + SELLING DISTRIBUTION

COST + ADMIN/FINANCE COST = TOTAL COST
 Indirect Costs

 DM + DL + DE = PRIME COST (P.C.)

 IM + IL + IE = FACTORY OVERHEADS (F. O/H)

 P.C. + F. O/H = PRODUCTION COST

 PRODUCTION COST + SELLING DISTRIBUTION

COST + ADMIN/FINANCE COST = TOTAL COST
 Indirect Costs (cont’d)

 DM + DL + DE = PRIME COST (P.C.)

 IM + IL + IE = FACTORY OVERHEADS (F. O/H)

 P.C. + F. O/H = PRODUCTION COST

 PRODUCTION COST + SELLING DISTRIBUTION

COST + ADMIN/FINANCE COST = TOTAL COST
 Fixed & Variable Costs

Fixed Costs = Costs that do not get

affected by output of
business. Eg. Rent

Variable Costs = Costs which vary with

output of business

Semi-variable = Contain elements of both

Costs fixed and variable.
 Manufacturing Costs
 All expenses incurred in making & finished product
available.

 Direct Materials = Fabric (shell, lining), thread, trims

etc are Direct Variable Costs

 Direct Labour = Include wages of employees who

work on the product in the plant, including cutters,
sewers and finishers.
 Manufacturing Costs (Cont’d)

 Indirect Labour = Work of these individuals is essential

to efficient manufacturing but none of them work
directly on the product Eg. Personnel Ocs, Material
handlers

 Overheads (O/H) – Consists of variable and non-

variable indirect manufacturing costs.

 NVC = rent, depreciation, insurance property, taxes.

 Variable (O/H) Costs = Machine parts, repairs, marker

paper, needles
 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.
 Direct Indirect
Labour Di r Labour Ind
ire ct
D rials Exp ect di rect s Exp irec
ens In rial en t
te es te se s
Ma Ma

Factory
Prime Cost
Overhead

Production
Cost

Selling &
Distribution Cost

Admin &
Finance

TOTAL COST
 Stages / Flow of Costing

 Pre-costing

 Costing done prior to adoption of line

 Costing done prior to production

 Post production costing

 Pre-costing / Preliminary
Costing
 Done during the pre adoption phase of product development.
 Used in early developmental stage
 To determine whether designer’s sketches are producible or
marketable within the established price range.
 Rough estimate based on estimates of costs of producing a style
based on estimate of material, labour, or costs of previously
producing a similar style.
 Helps to weed out styles that would be too costly for the line
before additional time and resources are invested
 Necessary for fashion manufacturer
 Costing for Line Adoption
 Done prior to line adoption
 Requires breakdown of garment components
and specific assembly procedures
 Determines expected investment in materials,
direct labour and overheads for each style
 Based on samples & standard data
 Requires more detail and greater accuracy
than preliminary costing
 Detailed Costing

 Done after styles are adopted in line

 Picks up any cost that may have been

missed during cost estimation

 Accurate account of product costs

 Time consuming activity

 Detailed Costing (Cont’d)

 Based on specific production methods for

each operation including machine type,
stitches per inch, workplace layout, pre
determined time systems and material
handling methods
 Changes may be made to economize on
fabrics or sewing time
 Provide basis for establishing production
budgets
 Actual Costing

 Determined by using actual data from

production

 Costs are monitored throughout production

 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.
 Direct Labour
 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.
 Direct Labour (Cont’d)

 Important to calculate direct labour costs:

 Direct labour cost per hour

 Direct labour cost per item

(SAM* - Wages per Minute)
(SAH* - Wages per Hour)

 There are two aspects of labour costing

 Budgeting for production

 Labour cost for individual style

 Labour Costing - Budgeted
 Basis for labour costing is time
 Labour costs = Direct & Indirect need to be budgeted
for a firm to examine it’s financial commitments &
evaluate its capacity to produce a product
 This represents the firm’s financial commitment to
employing a pre determined number of operators for a
specific time period
 Calculated to establish Budgets, schedule work and hire
employees
 Labour Costing – Budgeted (Cont’d)

 Total DLC = No. of Operators * hours / week * weeks /

year * average hourly earnings.
 DLC = Std Labour Cost + Excess Labour Cost
 Std LC = Money earned to produce the product / piece
rate earnings
 Std LC = % Plant efficiency * No. of work hours *
weighted average base rate
 Std LC is needed to determine the cost of producing
each style & excess cost of each style
 Based on plant efficiency and weighted average base
rate
 Labour Costing – Budgeted (Cont’d)

 Plant efficiency is determined by the volume of

production relative to the input of work hours.
 Based on operational history of plant.
 Base rate is established compensation for one hour of
work. May vary for skilled operators.
 Excess labour cost is compensation for time spent on
the job but not producing a product
 It is the difference between total earned and total paid
to direct employees.
 It may be result of machine downtime, out of fabric to
work on, etc.
 Labour Costing – Individual
Style
 Begins with a breakdown of all operations involved in
assembling a style
 The style can be broken into component parts and sub
totaled or the production standards for each operation
can be added together for the total garment.
 Production standard reflects the normal time required
to complete one operation using a specified method
that will produce expected quality.
 Production standards set a consistent work rate or time
for completing each specific operation.
 Labour Costing – Individual Style (Cont’d)

 Time values specified in production standards are

referred to as SAM/SAH.
 Production time is converted into Re/$ by determining
the value of each minute.

Example:

Std. rate is $6.00 per hr, each minute of actual

production is work $0.10. A garment that required 5.5
minutes of production would have a $0.55 direct labour
costs.
 Labour Costing – Individual Style (Cont’d)

Working Hrs.
Employee Salary (ETB.) Payment
(Month)

A 208 3100 3100

B 208 3100 3100

C 208 2500 2500

D 208 2900 2900

Total 832 11600

Labour cost = 11600/832 = ETB 14/Hr.

 Direct Labour Cost
 Remuneration paid to employees who make the
garment-cutters, machinists (operators), pressers etc.

 2 options of remuneration:

 Time based wages (Hrs worked * wage rate per

hour)

 Piece rates (Pieces produced * rate per piece)

 Who Sets the Rates?

 Minimum wage laws

 In India differ for every state

 Minimum wages in Delhi – Rs. 2600 per

month of 26 working days in a month.

 Each working day is 8 working hours

 Each working hour = Rs. 12.50/-

 Piece Rates

 Often difficult to set

 Involve work study techniques to measure

time taken to perform an operation

 Problems associated with Piece rate systems

 Direct Labour Cost

 Fashion vs Staple Merchandise

 Maker Making costs affected by

 Variations in width of piece goods

 Fabric design
 Spreading Cost

 Type of Fabric spread

 Length of spread

 Consistency of fabric

 Spreaders attention to fabric defects

 Complexity of spread
 Cutting Cost

 Pattern Configuration

 Die Cutting requirements

 Fabric Type

 Fabric Design

 Spread Height
 Assembly / Bundling

 Bundle integration

 Bundling specifications required

 Sewing Operations

 Size of sewing bundles

 Size and colour variations

 Variations in fabrics

 Utilization of Equipment

 Quality Specifications
 Pros & Cons of Piece Rate System

Advantages

 Labour can be hired on need basis

 Avoids union activities

 Can be fired if performance is not of expected

level

 Manufacturer does not have to spend on

training
 Pros & Cons of Piece Rate System
Disadvantages
 Workers work at their own free will.
 Slow workers are not able to earn as much.
 Manufacture might not find the best workers
specially during season
 To earn more workers might produce inferior quality
 Every time a mfger hires, there needs to be price
negotiation
 Operators not responsible for upkeep of machines
and equipments.
 Elaborate records need to be kept of pcs produced
 Working Hours & Overtime
Rates
 Section 51 – Weekly Hours
No adult worker shall be required or allowed to
work in a factory for more than forty eight hours in
any week

 Section 54 – Daily Hours

No adult worker will be required or allowed to
work in a factory for more than nine hours in any
day
 Working Hours & Overtime Rates (Cont’d)

 Section 59
Where a worker works in a factory for more than
eight hours a day or for than 48 hour a week, he shall
in respect of overtime work be entitled to wages at
the rate of twice his ordinary rates of wages
Workers in a factory who are paid on piece rate basis,
the time rate shall be deemed equivalent to the daily
average of their full time earnings for the days on
which they actually worked on the same or identical
job during the month immediately preceding the
calendar month during which the overtime work was
done.
 Methods / Techniques of
Costing

Direct costing

Absorption costing

Activity based costing

 Direct Costing
 Considers only variable costs production
labor, materials, sales commissions to be
product costs.
 Non variable costs, both manufacturing and
non manufacturing are treated as time period
costs.
 Individual product costs are clearly identified.
 Makes it possible to compare the cost of
production, contribution each product makes
to non variable selling & administrative costs
& profit.
 Direct Costing
 No consideration given to absorbing fixed O/H
 Variable O/H is usually treated as a part of
direct cost.
 It is pure cost
 This method weakens the impact of
managerial responsibility
 Most important impact proper allocation of
semi variable expenses
 Direct cost advocates feel, fixed O/H should
be tracked but not charged to product costs.
 Absorption Costing
 Principle – All costs including an appropriate
share of all O/H are borne by all products.
 Fty O/H have to be added together in some
way and then divided amongst all products.
 Problems – Some costs are easily traced to a
garment others are not
 Fty O/H in some cases are accounted over
long periods of time. Hae to be estimated in
advance.
 OH rate per Prodn hr = Total OH/Estimated
Prodn Hrs.
 Absorption Costing (Cont’d)
 Considers all mfging costs (variable & non
variable) to be product costs
 O/H is allocated with application rate which is
a % of direct labor cost
 O/H application rate – Factory overhead /
Total direct labor cost
 Risks:
 DLC calculation might not be accurate
 O/H application rate might not be accurate
 As DLC reduces it shows reduction in O/H
 Absorption Costing (Cont’d)
 All costs including an appropriate share of overheads
are borne by all products
 Some costs are easily traceable while other are not
 Problems with factory overhead:
 Overheads have to be added in some way and
then divided amongst all the products
 Some overheads are accounted over longish
period of time
 Hence some overheads are estimated in advance
 Activity Based Costing (ABC)
 A more realistic approach
 Virtually all of the company’s activities exist to support the
production & therefore all be considered as product costs
 Build accurate direct labour & materials cost data
 All factory OH, S&D costs, Admin costs are assessed to
activity centers (design, merchandising, quality, etc) and
then allocated to styles which demanded these resources
 Most factory OH are divisible or separable and can be
traceable to specific products
 All costs are budgeted, both direct & indirect
 It is diagnostic tool that allows focus on overhead cost
reduction as well as reductions in direct labour cost
 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.

Case Study
 Company- Introduction

 A US $ 43 billion premium global corporation

 120,000 employees belonging to 42 nationalities
 Group has been ranked 4th in the world and first in Asia Pacific in
the “Top Companies for Leaders” study in 2011.
 Over 50% of revenues flow from its overseas operations.
 The Group operates in 35 countries
 History

 Allen Solly was founded in 1744 by a company called William

Hollin & Co. Ltd. The brand was purchased some time in the 90’s
by a new company called Madura Garments which was a part of
Madura Coats. Madura Coats was a big producer of threads.
 The Vision of Allen Solly:

The company aimed to emerge as a brand which was totally new

and did not stick to conventions. “Friday Dressing” was
introduced to give the company a stronghold. Initially the Indian
markets was not open to experimental apparel for men. Friday
dressing by Allen Solly gave Indian corporate a chance to
transform their wardrobes. The new formal wear was relaxed
and not boring. The Aditya Birla Group took over Allen Solly in
2001
 Comprehensive Study
Allen Solly
 Name: Allen Solly
 Launch: 1744
 Take over and launch in India: 1993
 Previous Owner: Williams Hollins and Corporation Ltd.
 Present Owner: Madura Fashion and Lifestyle, Aditya Birla Group
 Stores in India: 205 Stores / 98 Cities / 25 States
 Sub brands: Allen Solly Juniors, Solly Jeans, Solly Sports, Peter England,
Louis Philippe, Van Heusen, V Dot, Esprit, Elite, Planet Fashion etc
 Solly Sports Categories: Shirts, Trousers, Denims, Shirts, Suits, Blazers,
Jackets, Shorts, Skirts, Blouses, Capris, Jeggings, accessories such as
Belts, Ties, Portfolio bags, Handbags, Handkerchiefs, Shoes,
Socks,Wallets, Cufflinks etc.
 Allen Solly - Merchandise Mix

 The merchandise kept at Allen Solly stores altered

every 6 months, that is when the Autumn-Winter
Collections or the Spring Summer Collections are out.
 The stores are usually divided into sections on the
basis of different segments like Men’s wear, Women’s
wear, Kids wear, Accessories, Discount sale, and a
mixed sale arena.
 The entire store reflects a sense of sophisticated
display of individual groups of merchandises
 Product Mix

 Allen Solly not only aims to dress people better but

also allow them to experiment with their looks

 The fresh range of clothing has helped the developing

India come across as stylish and really presentable

 The extreme passion with which they are building

their brand has helped the contemporary Indian
generation to develop a style that is incomparable
and quite classy
 Products
Garments Accessories

 Shirts  Tunics  Belts  Handkerchief

 Trousers  Shorts  Ties  Socks

 Wallets  Cufflinks
 Denims  Skirts
 Portfolio Bags  Shoes
 T-Shirts  Blouses
 Handbags  Shrugs
 Suits  Capri
 Clutches
 Blazers  Jeggings
 Jackets  Sweaters
 Overcoat  Sweatshirts
 Methods of Sourcing

 As Allen Solly have plenty of customers, volume

wholesaling is a great way to source for products.
 It stand to make huge profit margins if the product
they sell at retail prices after buying them using this
option.
 The profit margins will be slimmer if they also use
drop shipping as a product sourcing method.
 Allen Solly uses liquidation method to buy products
from wholesalers or manufacturers as they are very
eager to sell.
 Assortment Planning

 The following policies are important and affect the

planning process: To stock national brands or irregulars,
Exclusivity of Merchandise, Pricing, Sales Promotion,
Service
 All the products are well assorted in all the stores of Allen
Solly, either it be men or women and has made a different
segment and store for kids named Allen Solly Junior.
 Products of same silhouette are placed in same area like
short length shirts, suits, trousers, etc are kept in their
respective rows.
 Not only product variety wise but also according to its
price range and color range
 Range

Here’s the range of Allen Solly Specializes in: (in INR)

 Denims: 1,499 – 4,900
 Kids apparel: 499 – 3,000
 Classic and formal shirts: 1,200 – 3,500
 Classic and formal trousers: 1,200 – 3,499
 Formal and non-formal t-shirts: 800 – 2,500
 Footwear: 999 – 4,999
 Bags: 2,000 – 5,000
 Belts: 999 - 2,000
 Pricing
 Like any other contemporary, Allen Solly also aims to bring
the best of dressing option for Indian audience at affordable
price.
 Be it the size, Small, Medium, Large or Xtra-large Allen Solly
has something for people of all shapes and sizes.
 The price range is also very soothing, people can buy
impressive T-shirts at an initial price of 500 INR and shirts for
somewhere around 900 – 1,200 INR.
 Price of Jeans, Cardigans, Jackets and Bermudas varies on the
basis of quality.
 Pricing merchandising products is complex process that is
based on very accurate costing analysis and sales projections.
 Quality
 Allen Solly product comes under best 5 Indian
clothing brand according to their quality.

 Customer review for its quality: The comfort of the

clothing in Allen Solly is amazing. It makes us feel
very free and we can do our works easily. The
amount paid for the clothing are genuine for is
quality. The clothing are very simple and attractive.

 Either formal or casuals, shirts from Allen Solly are

highly quality assured always and available in variety
of colors and patterns.
The Concept of Friday Dressing,
1995
 This was and is the brand’s core USP and has held it in good stead
over the many years. The brand not only created a category called
“Work-Casuals” but Friday dressing went on to become the
pseudonym for free thinking, free-spiritedness and
unconventionality at work place. In simple terms Friday dressing
symbolizes a relaxed casual entry from the busy week into the
weekend accompanied by smart and semi-formal dressing in the 21st
century.
 In the later years, after 195 Allen Solly studied the market of Indian
women and identified 4 body types:
• Comfort
• Trim
• Straight
• Regular
Tagline – Friday Dressing Why
so Serious?
 Costing
 Costing refers to the costs used to create a product.
 These costs of goods include direct labor, direct materials,
consumable production supplies, and factory overhead.
 Cost of Goods: It is the cost of Manufacturing, including all
materials, direct labor, and manufacturing overhead.
 Cost of goods sold: It is calculated by adding inventory
purchases to the beginning inventory and then subtracting
the ending inventory for a specific time period.
 The costs of goods include full package price charged, CMT
(Cut, Make & Trim) Price plus cost of material.
 CMT + Material Cost + Labor + Freight cost + Taxes
(Import/GST etc)
 Merchandising Calendar
 The basis for all merchandising planning in apparel
companies is the Marketing Calendar.
 Calendar is the central mechanism from which all other
marketing schedules and all merchandising and
manufacturing plans evolve.
 This planning tool is the clock that drives merchandising
product development schedules, sales appointments with
important customers manufacturing planning.
 Deliver the proper product mix on a timely basis.
 Manufacture what the consumer wants with respect to
style, quality and cost.
 Importance of 6 Month
Merchandising Planning
 Done after a inventory plan, Merchandise plan

 This plan is prepared for six months

 Merchandise budget should be prepared in advance of

selling season

 Easy to understand

 Economy is changing, plan for 6 months.

 Flexible budgets
 Deals In

Major Competitors
 United Colors of Benetton  Raymond

 Color Plus  Arrow

 Blackberry