Product and Process Costing in Garment Manufacturing

This is a useful article for apparel merchandiser and others, who is involved in garment costing. This article shows how to calculate material and process cost for a knitted polo shirt.

Product Costing

To estimate product cost you need to know or calculate all the above cost heads separately. I have earlier posted articles on raw material cost, direct labor cost, indirect labour cost, and factory overhead cost. Read these articles if you need clarification and calculation procedures.

1. Raw Materials Cost

Let first discuss raw material costing. Fabric is the main raw material for a garment and other raw materials include various trims and accessories.

1.1 Fabric Costing: 

The costing of knitted fabrics is done according to weight i.e. GSM. Before GSM can be calculated, it is important to know the yarn cost, knitting cost, processing costs and the process losses. First you need to collect fabric/yarn price and process costs from your vendors and processors for your internal costing purpose. For example suppose you have following details of yarn price and other process

Yarn Price: In case you are planning to source yarns and knit the fabric by yourself or from knitters, you have to collect yarn price for the yarn you will be using in your fabric. These are few different yarns types – 20s, 30s, 50s, 2/60s Combed. In case you need dyed yarn for stripe fabric collect price for dyed yarns.

Knitting Price: There are different types of knits fabrics, like Single Jersey, Rib, Interlock, Feeder stripes, jacquard fabrics. Prices for making such fabrics are different. You need to know their price and use the price in costing. Also consider knitting loss% while calculating yarn requirement and yarn costing. Normally 2% is taken as knitting process loss calculation.

Do you need to dye your fabric for colored fabric? If yes, contact with dyeing house/mill and collect dyeing price. Add process loss% for dyeing. If you need other kind of finishing checks those finishing prices (Fabric stage).

So, you get fabric price using following formula:

In a style, there might be more than one type of fabric used. You need to find fabric cost (processing cost) all fabrics separately. 

Fabric Consumption per garment:

Find fabric consumption per garment considering average garment size and making a few sample garments. Read the method of calculating fabric consumption. Once you have the fabric price and fabric consumption you can easily calculate the cost of fabric per garment using the following formula,

This is explained with one simple example. Price of the fabric that you need for your order is Rs. 400 per kg and consumption of fabric per garment 230 grams (0.23 kg) including wastage. Then cost of fabric per garment would be Rs. (0.23 * 400) i.e. Rs. 92.

For woven product, you will get fabric price per meters. You have to find fabric consumption in meters and use same formula to find fabric cost.

1.2 Trim and accessory cost

Prepare bill of material for the given order and calculate trims cost per garment. In the bill of material per piece, material cost is calculated. Fabric details are also included in the Bill of material. Read this post to see a bill of material (BOM) format and how to prepare the bill of material for an order.

So, to find process cost first you need to know complete processes to be followed for the given order. If you are sourcing yarns and knit it by yourself read further.

2. Process Costing for internal processes

Process cost = (Raw material processing cost + garment processing cost)

Garment factories stitched garments in-house and source raw materials such as fabrics, trims and accessories. Some garment factories prefer buying yarns instead of purchasing finished fabric. Raw material process costing is already discussed above.

Internal processes for direct labour cost and indirect cost are fabric cutting, stitching, thread trimming and finishing.

Cutting cost: Per piece cutting cost is derived from monthly salary of the cutting team. In case cutting is done by contractors, piece rate is taken for cutting cost.

Stitching cost: If factory pays piece rate to operators then take piece rate, or calculate direct stitching labour cost from the monthly wages.

Finishing Cost: Finishing process includes thread trimming, checking, ironing, folding, and packing. You can calculate process wise cost and sum up those to find finishing cost. Or you can take monthly wages (average) in the finishing section and divide it by total production to get per piece cost for finishing process.

Factory overhead costing: In factory overhead cost all costs other than material cost and direct and indirect labour are included (if you have not calculating expenses in other cost heads). Read this post for factory overhead cost calculation.

Conclusion: 

In the above I have just covered things you need to know and cost that you need to include in product costing. There are various method costing apparel product and later calculate its pricing. The aim is to know exact cost of making the product. Actual product cost should not less than the estimated cost.

Remember to add some margin in all these cost as buffer and material wastage and find quality issue in garment production. You can use same method for costing any other apparel products in knits and woven product.

Also read: How to Calculate Cost of Manufacturing Apparel Products

Question: How do you do product costing in your factory? How often you made accurate costing?