Where?

In fashion industry, apart from a merchandiser in an

export house who else will be interested in costing a
garment
Retail merchants/ Managers
Cost estimators
Designers
Production mangers
Combination of number of individuals who are
involved with a product line
IN FASHION RETAIL
A retail merchant / manager uses costing to determine
Producibility of a design within an established price
range
The profit potential of a design
Whether a design should be added to a line
COSTING STAGES
Stage 1
Preliminary / Precosting
Stage 2
Prior to line adoption
Stage 3
Post adoption / pre production
Stage 4
Actual cost determination
PRELIMINARY COSTING
Early in the design development stage
Checking of designers sketches
Producibility
Marketability in a price range
Rough estimate based on
Materials, labor
Similar styles produced in the past
Necessary even at this early stage
Designers styling ideas for a range
IMPORTANCE OF PRELIMINARY
COSTING
Preliminary costing helps in
Weeding out designs that are too costly for the line
before additional time and resources are invested
Modifying the design which has potential but is too
costly to produce
Helps in saving sample cost at retailer end which can
vary from $50 to $300

COST ESTIMATION FOR LINE
ADOPTION
Done just prior to line adoption
More detailed than precosting
Requires a breakdown of
Garment components
Assembly procedures
Cost estimation at this stage determines the
Estimated investment in materials
Direct labor
overhead
Helps in decision making process of style decisions related to
producibility at specific price point
Costing at line adoption stage is based on
Sample
Standard data

DETAILED COSTING FOR POST
ADOPTION PRODUCT DEVELOPMENT
Provides as opportunity to pick up any costs missed during earlier
stages
Overlooked label
Extra button
Complex operation that could be simplified
More accurate
Tedious and time consuming
Detailed costing is based on
Specific production methods
Machine type
SPI
Work place layout
Material handling methods
What about PMTS?
Use of standard data (in-house)
Use of PMTS to determine production cost
DETAILED COSTING ENABLES
Changes made
To economize fabric and sewing time
Might result in increase in cost
Decision taken on plaid matching
Increased seam allowances for quality
Provides basis for establishing production budgets
DETERMINING ACTUAL COSTS
Calculated after data collection from production
Might need rate adjustments
Calculated productivity is too high
Few construction require elaborate operations
If the retailer owns the factory then rate adjustments
are feasible
In current scenario, rate adjustments happen only if
buyer adds any extra trims, / operations
What are we concerned with
Calculation of variable and non variable costs of
materials and labor required
Overhead necessary to operate a firm
General operating expense
Three costing methods
Direct costing
Absorption costing
Activity based costing (ABC)
DIRECT COSTING
Considers only the variable costs such as direct labor,
material costs and sales commission to be product
costs
Non variable costs, both manufacturing and non
manufacturing are treated as time period costs
Price-cost taken = contribution
Contribution has to cover non variable costs and profit
Advantage:
Easy to identify the individual styles and their level of
contribution
Disadvantage:
Easy to miscalculate the margin and end up in loss
ABSORPTION COSTING
Considers all manufacturing costs, both variable and
non variable as product costs that can be allocated to
products
Overhead is allocated with an application rate which is
a percentage of direct labor cost
Over head application rate is the ratio of total factory
overhead and total direct labor costs for the factory
Disadvantage: Arriving at the correct overhead
application rate as it can easily distort the profit
potential of a product

ACTIVITY BASED COSTING
Activities creates costs and those that can be associated
with certain products, customers or suppliers should be
allocated accordingly
All factory overhead, administrative overhead and any
other resource used in support of a product are first
assessed to activity centers such as design, merchandising,
MIS, quality and distribution
For example, if a ladies fashion style has taken more time in
designing then designers time spent is taken into account
for that style where as a regular shirt for which designer has
not spent anytime will not be considered for costing