7 Key Principles of Apparel Costing

Apparel Costing Principles:
Costing is the technique and process of estimating the cost for a product or service or process- noted from “Institute of Cost and Management Accountants, London”. The very changing nature of modern business is highly dependent on the cost accounting information for decision, planning, and controlling the required functions quickly and accurately. As its importance, this article has presented seven key points which deeply related with apparel or textile costing.
Fig: Apparel costing

Important Principles of Textile and Apparel Costing:

The main principles of apparel and textile costing are as follows:

  1. Ascertainment of cost,
  2. Estimation of cost,
  3. Cost control,
  4. Cost reduction,
  5. Determination of selling price,
  6. Facilitating preparation of financial and other statements,
  7. Providing basis for operating policies.
All the above costing principles have discussed in the below:

1. Ascertainment of cost:
In case of ascertainment of cost, costing is done based on the previous data or records. This type of costing principle is considered as the old techniques of costing.

2. Estimation of cost:
Here, the cost is estimated freshly that means what would be the cost for the particular activity which is going to be carried out. This type of costing is done according to the current data or records or information. It is considered as the modern techniques or systems of costing.

3. Cost control:
It requires standard cost or predetermined cost. This involves comparison of actual cost with standard cost and analysis of variation between the actual cost and standard cost.

4. Cost reduction:
Costs are not only to be controlled but constant efforts to be made to reduce them. Constant cost reduction through research development increases the sales and profit. Cost reduction should be done without affecting the quality of the product.

5. Determination of selling price:
The main object of costing is to determine the selling price. Business enterprises are run on a profit making basis. Returns should be greater or higher than the cost incurred in apparel production process. Other factors to be considered in determining the price are competition, market condition, demographics etc.

6. Facilitating preparation of financial and other statements:
Costing facilitates the making of statements at short intervals as the management may require it. To operate a business at high level or efficiency it is needed for the management to have a frequent review of apparel or textile production, sales and operating results.

7. Providing basis for operating policies:
Costing helps the management in formulating operating policies such as determination of cost-volume relationship, shutting down or operating at a loss, making or buying from outside supplier, continuing with the existing plan and apparel or textile machineries or replacing by economic and improved models.

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