1. Introduction
Cost is typically defined as the economic value placed upon the resources consumed to make a product. Costing incorporates estimating and then determining the total cost of producing a garment, including the cost of materials, labor and transportation as well as the general expenses of operating the business. The technique and methods to be used for ascertaining the 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. In Ready-made garment industry, cost sheets are generally prepared by a merchandiser. If the manufacturer sells the garments directly to the end consumers, it’s very important to estimate the cost very accurately. Pricing of the garment can be done by adding manufacturing cost with estimated markup or profit percentage to it. If the manufacturer exports the garment, the cost is the base of the business. Cost of manufacturing includes wages, salaries, utility charges, overhead and other operating expenses of the company. With this cost, merchandiser negotiates with the buyer and decides whether to accept the order or not. 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. Merchandisers must be aware that there are always fluctuations in the costs of raw materials and accessories, knitting charges, processing, finishing, sewing and packing charges, transport and conveyance. The method of making costing will vary from style to style, as there are many different styles of garments. Cost is estimated freshly that is what would be the cost for the particular activity for a style which is going to be carried out. The main purpose of costing is to determine the selling price.
Elements of Costing
The main components of costing consist of several issues:
● Fabric cost
● Trim cost
● Accessories cost
● CM (Cost of Making)
● Washing charge (If any)
● Embellishment costs (If any)
● Test charge
● Commercial cost
● Transportation cost
● Overheads
● Buying house commission
● Factory profit
● Other costs etc.
2. Literature Review
The volatile nature and rigorous competition in the garment industry drive all the companies to minimize their cost by controlling inventory, accurate forecasting and low mark-downs [1] . Garment costing is the most important part of the apparel business as the apparel industry has expanded globally [2] . The cost should not be under-costing and over-costing to ensure continuous orders over the years [3] . Getting an order depends on the quality of garments, compliance and the price [4] . Apparel product development is an important stage in the life cycle of a product. Shortening this stage will help to reduce the costs of a garment [5] . Garment industry is looking for a sustainable cost analysis solution that can provide actual costs for finished goods and identify whether the industry gained profit out of a particular style or not [6] . 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 [7] . The costing is done keeping in mind the cost of the various raw materials, operating cost of the company, competition, and the expected profit of the organization [8] . FOB & landed costs must be analyzed for sourcing decisions, but they must be complemented by information on the effects of supplier lead times and consumer retail interactions, which are critical to overall supply chain performance [9] . The development of sustainable business practices lends itself to an efficient operation that streamlines effort and conserves resources, which enhances employee productivity and reduces cost [10] .
But there are no visible works proposing the actual method of calculating product cost, although the apparel industry is following excellent methods of costing. So, this article exhibits some complete cost sheets that can give people a clear idea of preparing garment costing accurately.
3. Method
Four garment factories specialized in producing these four times, namely shirt, woven trousers, t-shirt and polo shirt were selected for taking the final costing. All orders were taken on Free on Board (FOB) basis. So, in this study, all cost sheets are prepared for FOB orders. Each factory, specialized for particular product, was found working with various types of the same product. But only the basic products were taken since most of the garment factories work with the basic items.
Limitations
Since costing is considered as a confidential issue for the factories, initially all of them were reluctant to provide the actual cost sheets. Later on, we were able to convince them stating that this research will help the complete industry to have a consolidated idea on the bulk of the garments exported from Bangladesh. Only then, they came forward to helping us with the relevant information.
4. Results and Discussion
Tables 1-4 show the complete cost sheets for four major apparel items, namely woven shirt, woven trousers, t-shirt and polo shirt. These cost sheets exhibit the minutest breakdown of cost components required for doing a garment costing.
It is clear from Table 5 and Table 6 that, for all four products, namely shirt, woven trousers, t-shirt and polo shirt fabric cost constitutes the major portion of the total cost. For shirt, it is nearly half of the FOB price. Fabric cost exceeds half of the FOB price for polo shirt. Trim costs are nearly the same for all products and remain in the range of 3.2% to 4.7%. But, accessories costs are varying for different products. Polo shirt has the less accessories cost at 2.9% only, whereas t-shirt constitutes the maximum 8.5%.
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Table 1. Cost sheet of a dozen of woven shirt.
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Table 2. Cost sheet of a dozen of woven trousers.
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Table 3. Cost sheet of a dozen of T-shirt.
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Table 4. Cost sheet of a dozen of polo shirt.
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Table 5. Breakdown of cost components.
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Table 6. Breakdown of cost percentages.
Shirt incorporates the maximum cost of manufacture (CM), 23.5%, due to having higher number of components and more than forty operations in its sewing process. Woven trousers also exhibit the same scenario. This incurs only 1% less CM when compared to a shirt. Because it also needs similar number of
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Figure 1. Comparison of price components.
operations that of a shirt. T-shirt requires only 12 operations whereas polo shirt requires 16. These are reflected at their CM with 15.2% and 17% respectively.
The segment, other costs, has different pictures. This is more for woven trousers and t-shirt, around 30% for both. This is because both have higher washing charges. Shirt and polo shirt have relatively lower washing charges that finally contributed to their lower other costs. We can illustrate the comparison of major components of costing, like fabric, trims, accessories etc. in the below graph (Figure 1).
5. Conclusion
Bangladesh is still producing basic items, although some factories are moving towards value-added, fancy products. For manufacturing any types of apparels, it is important to consider every cost component carefully. This ensures continuous orders from the buyer’s end of the year because all RMG producers are moving towards cost curtailing principles. Thus, minute and careful investigation of costing and continual improvement is vital.
Future Scope
More detailed experiments considering simple to complex types of products can give a more accurate picture of cost analysis for apparels. But for this, a longer time period is needed. Alongside, factories should come forward to provide the researchers with the actual price quotations.