Fashion merchandising: garment

costing
Vasant R Kothari,
Joint Director,
National Institute of Fashion and Technology, Sanket Joshi, MIFT, NIFT Bangalore
Posted on August 10, 2013 11:29:55 am Last updated at October 24, 2017 12:05:13 pm

Introduction:
Cost typically can be defined as’ the economic value placed upon the resources
consumed to make a product.’ Costing is the process of estimating and then
determining the total cost of producing a garment, including the cost of materials, labour
and  transportation as well as the general expenses of the operating the business.
Merchandiser has to have thorough understanding of costing. There are several
reasons where cost plays the vital role. Merchandiser does the costing mainly for two
purposes.
Prising of the garment: If manufacturer selling the garments directly to the end
consumers then it’s very important to estimate the cost very accurately. Prising of the
garment can be done by manufacturing cost added with estimated mark-up or profit %
to it.
Order acceptance: If manufacturer is exporting the garment, the costing is base of the
business. On the basis of cost of manufacturing including wages, operating expenses
and transportation and freight charges, and profit margin of company, merchandiser
claims the cost of unit garment. With this cost merchandiser negotiates with buyer and
decides whether to accept the order or not.
In order to do perfect garment costing, one must know about all the activities including
purchase of fabrics, sewing, packing, transport, overheads, etc. and also about their
costs, procedures, advantages and risk factors. Merchandiser must be aware that there
are always fluctuations in the costs of raw materials and accessories, charges of
knitting, processing, finishing, sewing and packing, charges of transport and
conveyance. The method of making costing will vary from style to style, as there are
many different styles in garments.

Components of cost of garment:

In continuation of the other functions Production merchandiser is also required to do the
costing of the product. The costing is done by keeping in mind the cost of the various
raw materials, operating cost of the company, the competition and expected profit of the
organization. At the same time, it is necessary to keep in mind the buyers costing
expectations.
The components on which cost of garment depends is as follows

 Fabric
 Trims
 Cut Make & Trim charges
  Value added services: printing, embroidery, washing, applique
 Testing of the garment
 Quality
 Transportation and logistics cost
 Profit of the manufacturing organization
All these components of garment cost depend upon certain parameters which
drastically affects above cost parameters. These parameters plays vital role when
production merchandiser does the costing of garment; as these parameters are very
dynamic and keep fluctuating frequently.

The parameters that affect the garment cost mostly are; Unit of Measurement, MOQ,
Incoterm decided between raw material vendor and garment manufacturer, order
quantity, etc.

Fabric:
Fabric is generally the most significant factor in costing of garment. Fabric accounts for
60 to 70% of the total cost of basic-styled garments .In many cases, evaluating the
quality and the quantity of fabric consumed in the garment indicates better than any
other factor the cost of producing it. The cost of fabric depends upon the type of fabric is
going to be utilised in the garment. Types of fabrics are

Woven/knitted fabric

Power loom/automatic loom fabric

Fibre/yarn/fabric dyed fabric

Fibre content of fabric i.e. cotton, wool, polyester, silk, blended fabric etc.

Type of dyeing and finish used

GSM/Weight of fabric.

Type of yarn used i.e. ring spun, open ended, or carded/combed etc.

The parameters that affect the fabric cost

UOM: Unit of Measurement (UOM) is a quantity used as a standard of measurement.

The Unit of Measurement for woven fabric is normally in meters or yard, while knitted
fabric measured in Kilograms or some time it is in yards also. Merchandiser should
aware of unit of measurements while finding out the cost of fabric. Sometimes buyer
specifies the UOM of fabric.
MOQ: Fabric Minimum Order Quantity (MOQ) is nothing but the smallest quantity of a
product that a fabric manufacturer can supply. The MOQ depends on the type of fabric
and on capacity of vendor. The MOQ plays the important role while ordering the fabric
as it directly affects the cost of garment. If the order of fabric is below the estimated
MOQ then vendor charges more cost as compared to regular charges. Merchandisers
need to keep the MOQ in mind while doing the costing of small quantity orders.
Order quantity: The cost of fabric may vary with the order quantity, more the order
quantity; cost of fabric can be optimised till certain level. But this is again depends on
the type of fabric required and fabric manufacturer capacity along with negotiation
between fabric buyer and supplier.
Incoterm used: This factor makes the huge difference in fabric cost. While importing
the fabric from another country merchandiser need to deal with the supplier for delivery
of the fabric on the basis of incoterms like EXW, FOB, CIF, DDP etc. based on which it
will be decided that who will bear the cost of transportation and risk. No matter which
incoterm is used but all the cost needs to be charged to buyer. If fabric is getting
purchased by using EXW incoterm then merchandiser needs to add the transportation
cost along with the custom clearance charges along with the price of fabric while
calculating the garment cost.
The cost of fabric can be calculated by following way

Yarn cost + fabric manufacturing cost (knitting or woven) + dyeing cost +

finishing cost= total fabric manufacturing cost
Dyeing cost indicate that if fabric is yarn dyed or fibre dyed or piece dyed respective
cost will be added depending upon fabric type. Finishing cost included heat setting cost,
normal finishing, compacting (knitted fabric) etc.

Cost calculations of fabric in garment:

Considering the knitted fabric and t-shirt as an end product, then fabric consumption
can be calculated as

And for woven fabric and shirt as an end product, then the fabric consumption can be
calculated as

These methods are used to calculate the fabric consumption roughly at sampling stage
by merchandiser. These formulas will give approximate calculation for pre costing stage
of the garment. Sometimes fabric consumption is also done by forming the miniature
marker by CAD department. Following are the constraints of fabric consumption

Fabric cuttable width, repeat size, pattern type to be informed to the CAD along with
buyer tech-pack in order to calculate exact width and consumption.

The marker efficiency considered 80-85% depending upon the fabric type i.e. solid
dyed, stripe, checks fabric.

Efficiency can be changed depending upon the fabric parameters, matching parameters
of the buyer, type of style.

The buffer in the consumption should be added to the fabric by merchandiser, generally
it is 0.03-0.08% of total fabric consumption.
In case of trim fabric i.e. interlining the 10-20% more buffers is kept while ordering the
interlining, in order to maintain the inventory and to avoid the shortage during the
production.

Fabric wastage percentage to be added in calculating fabric consumption. Considerable

wastage depends on factory practices, type of fabric and type of garment.

Trims
Trims include all materials other than fabric used in the garment. For example most
garments have accessories such as threads, buttons, zippers, labels, elastics and
miscellaneous items. Quality and quantity of trim and labour required to apply it on
garment are directly related to cost of garment. The different trims have different UOM;
even same trim can have 2-3 different UOMs that can be summarised as

Trims UOM

Thread 1000 meter tube, 2000/5000 Meter Cone

Labels Unit

Zippers Unit

Buttons Gross (144 Units)

Unit , thickness is measured in mm. or

Polybag gauge

Carton Unit

Hand tags Unit

Shanks Gross

Rivets Unit

Lace 50 Meter

Hanger Unit
 Tapes /
Velcro 50 Meter or Kg.

Elastics 50 Meter

Table 1 UOM of Various Trims used in Garment

Other factors that need to consider while calculating the trims cost is MOQ, order
quantity, lead time and quality of raw material used to make the trims.

Thread: After fabric, thread is another component which needs to be considered for

calculating the cost of garments most. The consumption of thread is calculated by IE
department. It is dependent upon the type of seam and SPI. While ordering the thread
the operation break down and number of sewing M/c for that particular style should be
taken in account. Accordingly number of cones of thread needs to order. In order to
calculate thread consumption special software’s are also available which gives the
accurate thread consumption.
Sometimes thread can be computed as while preparing the sample, initial weight of
thread cone is measured and after preparation of sample again weight measured. The
difference of weight gives how much thread is consumed, and converting it into meters
will give actual thread consumption for that particular garment.  While ordering thread
it’s important to consider the wastage, normally which is 10-15%.

Labels: Several labels are used in garment i.e. main label, care label, content label, the
cost of label depends upon make of label i.e. fibre content, printed, jacquard label, size
of labels, colours used in label, etc. for a unit garment label cost may not play a
significant role but in case of mass production it plays vital role.  The other factors that
are important while ordering the labels are MOQ, order quantity.
Zipper: zippers also has several types like metallic zipper, nylon zipper etc. which plays
the drastic role in cost of zipper. Merchandiser should be aware of the parameters of
zipper for accurate costing and negotiation. MOQ is the parameter which affects the
cost of zipper considerably; at certain MOQ only zipper will get at desired price.
Buttons: Buttons can be made up of different types, nylon buttons, plastic buttons,
acrylic based buttons, wood, shell, metal. Every type of button has its own MOQ
decided by manufacturer of button. Buttons are purchased on gross with the ligne
specified.
1 gross = 1 packet =144 buttons= 12 dozens

Polybags: The cost of poly bag is highly dependent on thickness, dimension and raw
material used. The poly bag ordered in terms of number of pieces. The cost of poly bag
is equally important as it give significant difference when we consider the whole order
quantity.
Cartons: Same like poly bag cost of cartons are highly dependent on material used and
dimensions. Depending upon these factors cost of cartons is decided, the UOM of
cartons generally is number of pieces while cost varies with MOQ. These are procured
based on the number of plies, dimensions of the carton and GSM of the paper used to
make the carton. Generally the number of plies used in carton box is 3, 7 and 9 ply.   For
example: 9 ply, 60 X 40 X40, 4 side calico, 1 side print and 180 GSM.
Hand tags: Hand tags or price tags are used as packing material, the cost of hand tags
are dependent upon material used, printing on it, and MOQ.
Shanks and rivets: Generally these trims are made up of metallic, the UOM of rivets
and shanks is gross and No. of pieces respectively. The cost of shanks and rivets is
dependent upon the MOQ and material used.
Hangers: Hangers are made up of generally hard plastics sometimes wood, the cost of
hanger is depend on material used, size, print and colour on it. Generally transparent
hangers are more costly than coloured one.
Taps and Velcro: Tapes are purchased based on the width and mobilon tapes are
purchased in kg. Thus increase in width by 100% increases the cost by 80%. For satin
tapes increase in width by 150% increases the cost by 250%. Another factor that affects
cost is MOQ.
Trims charges are generally calculated as for the different type of sourcing and mode of
transportation.

If shipment is by air then the trim cost + 15-25%  more cost is quoted to buyer,
depending on the freight charges

If shipment is by sea then trim cost + 10-15% more cost is quoted to buyer depending
upon freight charges

If domestic sourcing is there then, the local taxes. Transportation charges is bound to
add in the total trim cost

These additions are done by merchandiser, depending upon the business outlook.
Other charges included during the costing by merchandiser

Charges In %

Rejection and wastage 2-5 % (depending upon order quantity)

Commission on foreign
exchange 2-3%

Commission of buying house

(if applicable) 1-1.5%

Transportation charges
internally 1-2 $/ garment
 Margin (decided by marketing
department by looking business
scenario) 10-15%

Testing inspection charges 1-2%

Consumptio Amount
Items n UOM* Rate ($) ($) Remarks

2/60s
single 0.224 KGs 6.5 1.45
1 jersey

Cuff and
0.08 KGs 5 0.4
2 collar ribs

Sewing
150 Meters 0.08 approx.
3 thread

4 Buttons 3 Gross 0.04 approx.

5 Main label 1 Unit 0.02 approx.

6 Care label 1 Unit 0.02 approx.

7 Hang Tags 1 Unit 0.06 approx.

8 Price Tags 1 Unit 0.04 approx.

9 Poly bags 1 Unit 0.02 approx.

 Total
2.13
Cost

CMT cost:
COST OF MAKING
The cost of making done “in house” is based on the total cost per hour multiplied by the
number of hours it takes to make the style and divided by the number of units produced
if the making is done by a contractor; the contractor adds profit on to this amount.
Labour cost per minute = (Monthly salary of an operators/Total minutes available in
the month) at 100% efficiency
CM cost = (SAM of the garment * Minute cost of the labour)/Line efficiency (%)
Value added services:
This is cost added to of special process like embroidery, printing, washing used to
impart the type of look buyers wants. These are associated cost of garment
manufacturing are wet processing chemicals, washing and contracted operations.

Wet processing chemicals include bleaches, detergents, softeners, neutralizers, wetting

agents and resins. Complicated wet process finishes contribute a significant amount to
the price of a product. Merchandizer must know in detail about each of these
operations, sourcing, contracting requirement and time involved. Cost of these varies
depending on different styles. For example-Embroidery costing requires derivation of
thread   consumption, additional cost of hand embroidery is involved etc. printing cost is
dependent on no. of colours for printing, MOQ, and type of print.

Example of garment costing:

The example of garment cost is given by assuming the following dimensions for polo
neck T-shirt, no. of pieces = 4000, salary of the operator =6000 Rs./month=120$/month 
no. of working days = 26, line efficiency considered= 50%, sewing SAM= 15 min.,
Cutting SAM= 7 min. 1$=50INR
Chest = 60 cm, Length (HSP to waist) = 75 cm, Sleeve length = 25 cm
Fabric used is 2/60s 100% cotton S/J fabric. GSM is 180
The fabric consumption can be calculated as

       = (75 + 25 + 2) X (60 +1) X2X 180/10000

= 0.224kg + 0.08(weight of cuff and collar)

CMT charges are calculated as:

Total available capacity per month (in minute) = 26 working days*8
hours/day*60=12,480 minutes
Labour cost per minute = (Monthly salary of an operators/Total minutes available in
the month) at 100% efficiency
                                              = 6000/12480
                                              =0.480 Rs.
Sewing cost = (SAM of the garment * Minute cost of the labour)/Line efficiency (%)
=15* 0.480/50    
 =0.288$
Cutting cost = (SAM of cutting * Minute cost of the labour)/cutting efficiency (%)
= 7*0.480/50
=0.134$
Trimming cost is considered as 0.06$as it depends upon how many operators are there
for trimming.
Production cost of garment (CMT) = sewing cost+ cutting cost + trimming cost
= 0.288+0.134+0.06
= 0.482$
                       FOB cost of garment

Fabric cost + 7% duty 1.97$

Trim cost + 7% duty 0.3$

Fabric and trims transportation

charges 0.06$

Testing + inspection charges 0.2$

Commission on foreign exchange 0.08$

Buying house commission 0.16$

Rejection 5% 0.16$

Value addition services 0.2$

CMT 0.482$

Margin 0.5$

Total FOB cost of garment 4.11$

Conclusion:
Production merchandiser is responsible for doing the costing; hence knowledge of
costing is must for merchandiser. Apart from costing knowledge merchandiser must be
aware of fluctuation of cost of different components of garment, time to time. The
costing is very dynamic process; at international level negotiation is done only on cost of
production or most popularly known FOB of the garment. Hence, merchandiser should
be very careful while negotiating the cost of garment with the buyer. Sourcing is
common practice globally in garment business, production merchandiser is playing
buyers role for fabric/ trim manufacture on the other hand he/she plays suppliers role for
garment buyer. Production merchandiser must take care of both roles, when it comes to
cost as well.