The process of costing is establishing the amount of expenditure incurred on a single item, a calculation to determine whether or not a profit can be made in the manufacturing and selling of a product for a specific customer.
There are many manufacturing industries where the cost of costing might outweigh the value of the costing exercise i.e. where few processes are continually repeated and the item has little variation. This is not the case with clothing where new fabrics, trims, machinery and styles vary from season to season thus generating new SMVs and consequently requiring new costings to be conducted.
Any commercially aware manufacturer will not present a design or garment or a customer without firstly establishing that they can generate profits.
Three basic items must be considered for a costing exercise.
* Time spent on the manufacturing and by whom: results obtained from work measurement on direct operatives together with an estimation of the time spent by non-direct labour in developing the product.
* Materials used.
* Overhead expenses: costs related to running a factory or manufacturing unit.
These items need to be understood to maintain the costs of production. Control of production costs are also maintained by:
* Work study, production planning & planning control
* Quality systems to eliminate waste and monitor the costs of quality
* Purchasing and inventory policies to control the purchase and utilisation of raw materials.
Accountancy Terms Required for Garment Costing
Costing (Cost Accounting): The process of collecting, classifying, calculating, organising, reporting and using costs.
Cost: Is the measurement in financial terms of the use of the business’s resources in order to produce an output.
Financial Accounting: Largely concerned with the recording of financial information for the production of statutory financial accounts: taxation, VAT, assets etc.
Management Accounting: Term often used with or instead of cost accounting. MA includes costing but also considers the preparation of other management information such as capital expenditure, financial predictions, budgets, profitability etc
The Need for Performing Costings in Clothing Manufacture
1. To be able to establish a selling price for the garment i.e. form manufacturer to retailer who must then determine the selling price to the customer.
2. To control expenditure: how much material for each garment/production run: cost per unit: volume for the season/order. This also enables the company to establish inventory policies and keep raw material stocks to a minimum.
3. To help measure the profit of the business.
4. To enable managers to quote prices confidently i.e. tender for contracts.
5. To calculate staff wages and to determine if wage rises are possible.
6. To provide information to management on the effectiveness of resources.
7. To assist in planning and forecasting.
8. To enable budgets to be prepared in conjunction with planning.
9. To analyse budgets variances.
The costing activity collects and integrates information from a number of sources so that each department’s contribution can be seen in context.
* Costings are not possible without a fabric rating obtained from the design room. * Raw material costs have to be obtained from purchasing. * SMV measures must be known.
* Costings must include an overhead cost obtained from accounts.
Everyone within the organisation contributes to the cost of producing the garment and all this information must be accurately calculated to determine the true costs.
Calculating a Garment Costing
Several types of cost information are required for the calculations:
1. Direct Costs: Costs directly related to the manufacture of the garment.
* Direct Material Costs: The actual costs of all raw materials required...