How to Do Garments Costing in Apparel Industry?
The process of approximation of the total cost to produce a garment, from a buyer’s perspective, including raw materials, labor, and other expenses, can be deﬁned as costing. A costing sheet is used to trace the costing components. It is quite useful and handy to understand the percentage share of the cost for each constituent of the apparel supply chain, including the material used.
The allocation of the cost depends upon multiple variables. Due to competitive manufacturing in Asian countries, a large proportion of the world’s garments is manufactured in China, India, Bangladesh, Pakistan, etc. The ‘cost to the factory’ where the garment is manufactured include types of fabrics used, dyeing cost, trims, and accessories used (such as labels, hangers, threads, fusing, buttons, zippers, etc.), cutting cost, stitching cost, trimming cost, packaging cost, company overhead, labor cost, administration cost, etc.
A reasonable mark-up is added on the ﬁnished garment to cover expenses incurred by the manufacturer and to earn proﬁt. Once the garment is manufactured, road/rail transportation cost is added to deliver the garments to a port of loading. At the port of loading, the cost of freight forwarders and stevedoring is added.
Normally, the garments are transported by sea unless the lead time requirement is very tight that demands air transport. The landed cost of the garment in the buyer’s country includes the FOB (free on board) price, shipping cost, clearance cost, custom duties, and maritime insurance in the case of sea freight.
The cleared garments from customs are road/rail transported to the buyer’s warehouse, where the cost of inventory holding is added to the garment price. Margin is added to this ﬁnal price (which is the cost paid until the warehouse), which largely covers any mark-downs, expenses like salaries, sales promotion, rent, administration cost, insurance, taxes, etc., and ﬁnally the proﬁt for the store.
Garment Costing Format Followed in RMG Industry:
A detailed example of apparel costing sheet or costing format for a garment is given in the below table:
CMTP- Cut, Make, Trim and Pack
FOB- Free On Board
GST- Goods and Service Tax