Clothing Calculation: How is the cost of fashion products calculated? (2023)

• manufacturing,Technology

In the fashion industry there are so many moving parts and pieces that go into the creation of a single garment. Because of this, apparel costing is often considered one of the most complex operations in a fashion store.

As you may know, the basic principles of cost accounting are an essential part of any business, especially a fashion company. It allows the company to understand how much it is spending on various factors and how they affect its profitability in the long run. All costs and expenses must be closely monitored to avoid unnecessary waste of finite resources and ensure the profitability of the business.

By definition, cost accounting is the process of assigning value to all resources used in the production of goods and services, including material, labor, and other costs associated with production. In apparel manufacturing, costing is the process of summarizing all of the costs involved in making a garment—including direct labor, material, conversion, and overhead.

In this article we explain the definition and components of apparel costing, what it means, the different stages of costing in the fashion industry and how you can use itEnterprise-Resource-Planning-Systemereduce production costs.

What is "Cost of Production"?

According to the American Accounting Association, the cost is defined"the foregoing expressed in terms of money incurred or potentially incurred in the accomplishment of management's objective, which may be the production of a product or the provision of a service."

In simple terms, manufacturing cost is the total expense incurred in producing a product or service. They are also known as conversion costs, production costs and direct material costs. The total cost includes the cost of raw materials, labor, and other expenses such as utilities, rent, etc.

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In general, there are two types of costs to a business: direct and indirect costs.Direct costsare expenses for actual costs incurred during the production of goods or services (i.e. labor, materials). whereas,indirect costsare the general expenses that keep a business running but are not directly attributable to the manufacture of a product (e.g. rent, utilities).

In addition, you should know that there are different techniques to calculate costs in the fashion industry. These include: 1) direct costing, 2) full costing, 3) variable costing, 4) activity-based costing, and 5) standard costing.

Before we dive into what it all means, let's first understand why garment costing is so important to running a fashion business.

The importance of clothing costs

Apparel costing is a tool that helps manufacturing companies determine the cost per unit of manufacturing a product. This is essential to get an accurate cost analysis and determine the profitability of each product. It serves as a guideline for pricing the manufactured goods.

There are several goals that can be achieved through apparel costing:

• Cost accounting helps a company classify and subdivide costs and allocate budgets for each operation. It allows them to set business policies to measure efficiency and implement budget control.
• Garment costing also allows a company to clearly see where resources are being wasted or simply not being used optimally. In this way, it allows a company to plan and make optimal use of limited resources, keeping overall costs low and profits high.
• It is an important corporate management tool and helps with cost reviews and pricing. Costing helps companies make better business decisions by accurately predicting production costs, improving profitability, and increasing customer satisfaction.
• It helps companies identify areas where they can reduce their overall spend. For example, if certain raw materials are more expensive than others, this results in higher production costs that can be avoided by replacing those raw materials with alternatives that are cheaper but just as effective in achieving similar results.
• The cost accounting process also helps management in devising an effective expansion strategy. It allows them to take appropriate actions to account for and manage seasonal variations in volume, cost, etc.
• Problems aside, the calculation also shows you what's going well in the business. It helps management formulate and implement incentive and bonus plans.

Overall, it's safe to say that a good apparel cost strategy is the foundation of any successful business.

Components of cost accounting in clothing manufacturing

Typically, a product retailer is responsible for costing a product. The merchandiser must consider the cost of various raw materials, the company's operating costs, its competition, and the company's expected profit. At the same time, he must take into account the cost expectations of the buyer.

The following are the main components of the manufacturing cost of a garment:

• Fabric– This is generally the most important factor in the cost of a garment, accounting for almost 60-70% of the cost of a basic garment. Fabric can often be the deciding factor when evaluating the cost of making a garment.
• cuts– Aside from fabrics, everything else that is used to complete a garment belongs in the trimmings category. It can be threads, buttons, zippers, elastic bands, rivets, lace, labels or other accessories. The cost, quantity, and amount of labor required to attach trimmings all add up to the cost of a garment.
• Cut, Make & Trim Fees– Also referred to as CMT cost (Cut-Make-Trim) or CMTP cost (Cut-Make-Trim-Pack), it is the “manufacturing cost”. You can calculate CMT by multiplying the total cost per hour by the total number of hours required to manufacture the model divided by the number of units produced. The contractor's profit is also added to these costs.
• added value– Special processes such as printing, embroidery, washing or appliqué are grouped under the umbrella of “Value Added Services” in the clothing industry. Each of these can involve a complicated subset of costs of their own.
• test garment– Garment inspection and testing occurs at different stages of garment manufacturing – raw material, semi-finished or assembled stage, and post-processing. These include chemical tests, appearance after storage test, dimensional stability tests, color fastness test and so on.
• quality control– The costs of quality control related processes fall into four main categories, namely assessment costs, prevention costs and the costs of internal and external errors. They are the costs incurred in detecting and preventing defects during product development and production.
• labels and packaging– The cost of labels and packaging depends on the size, thickness, printing mechanism and material you choose. But the number of labels per item also plays a major role and should be taken into account.
• Transport and logistics costs– The cost of transporting products from the factory to your store or warehouse is recorded under freight and shipping costs. They can vary greatly depending on where you source your products from.
• Overhead– These are the costs your factory incurs, such as rent, utility bills, and equipment repairs. This includes indirect labor costs that are not necessarily linked to a specific product or service
• profit of the company– As self-explanatory as it gets, this “cost” is essentially what your business earns from selling the goods produced.

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phases of calculation

The 4 main phases of costing in fashion manufacturing are:

• Pre- or pre-calculation phaserefers to the initial estimates that can be made before the samples are taken. This gives a rough idea of ​​what to expect from the design based on similar styles. This allows you to eliminate or alter any designs that seem too costly to manufacture.

• Theadoption costsis a breakdown of the expected investments required for the design in terms of materials, labor and overhead. This involves breaking down the style into its component parts and figuring out how to put them together so that the design can be produced at a given price. The evaluation is based on random samples and available data.
• Calculation before productionincludes all fixed costs estimated to be incurred prior to production based on standard production methods. This calculation must be carried out before the actual production of a line begins.
• Actual cost analysisis the original estimate of the cost of materials and labor compared to the allowable budget for a project. It refers to accurately estimating the price of a product at various stages of production and tracking how much money you're spending in the process.

What is a fashion expense report? How to create an expense report

An apparel or fashion cost sheet is a statement showing the various components (as discussed above) that make up the total cost of a particular product. A cost breakdown is prepared based on historical costs and estimated costs.

To create a patternfashion cost sheet, you will need the following information:

1. Consumed Materials
2. Direct labor/wages
3. Direct costs
4. Main Cost - (1 + 2 + 3)
5. Factory workers overhead
6. Labor/Factory Cost – (4 + 5)
7. Office/Administrative Overheads
8. Total Production Cost - (6 + 7)
9. cost of goods sold
10. Selling and Selling Overheads
11. Total cost, also called cost of sales – (9 + 10)
12. Benefit
13. Sale – (11 + 12)

You can copy the table above and simply fill in relevant values ​​for each category to create your own free fashion cost sheet template.

Using WFX Fashion ERP to reduce fashion manufacturing costs

WFX ERP is a cloud-based enterprise resource planning solution that helps you reduce costs and increase productivity. It is used by fashion industry companies including InQube, Indochine, Phong Phu and Asmara. If you're looking for ways to reduce costs in your organization, consider WFX ERP.

In fact, there are four ways WFX ERP can help minimize costs:

• Reduce inventory costs by optimizing the amount of inventory stored at each point in your supply chain.
• Reduce labor costs by automating manual tasks so employees spend more time on higher-value activities, rather than repeating the same task every day or week (e.g. entering data into spreadsheets).
• Increase productivity by making it easier for your employees to access the information they need when they need it (e.g. by being able to look up customer data without having to wait for someone to send it to them).
• Reduce material costs by ensuring managers can see and maximize use of each resource. For example,EAM Maliban Textilesused WFX ERP to eliminate repetitive, low-value manual operations to free up time for material management, thereby reducing material costs by 5%.
• Reduce sampling costs by using analytics to monitor and analyze each product's performance and sales. For example, one of the companies using the WFX solution isLied Hong. They were able to reduce their sample costs by tracking each sample (including its iterations) developed for each buyer using WFX's sample feedback and approval tool to improve their sample hit rate.

As you can see, using WFX ERP is a great way to reduce costs in your company. To learn more about how WFX ERP can help you,Contact us or request a demo today.

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We hope this post has helped clear up some of the confusion surrounding the cost of fashion. If you're looking for a tool to help you better manage your fashion business, we recommend checking it outWFX Garment ERPorWFX Fashion PLMSoftware! It's designed to help manufacturers and brands of fashion, footwear and home furnishings control their inventory while ensuring they don't miss an opportunity.

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