What Is Costing In Apparel Manufacturing?

The garment industry is a huge, spread sector that comprises countless businesses across the globe. Today, multiple companies want to enter this industry; before entering, they must consider many factors, one of the popular terms among which is costing.

Costing is an important term in the garment industry that refers to the systematic procedure of estimating all the expenses of a business, be it a direct expense such as fabric accessories and trimming or indirect expenses such as overhead logistics or labour costs.

Costing ensures manufacturers can initiate an accurate selling price on their final product in the garment industry while analyzing market competition and maintaining profitability. This will make their products reach financial feasibility before they enter production.

Apart from these, Costing also plays a significant role in financial planning for the manufacturers in the garment industry as it helps them determine viability, identify cost-saving opportunities and better understand market demand and supply.

Importance Of Costing In The Fashion And Textile Sector

Costing plays a crucial role in the fashion and textile sector as it is the only factor that allows manufacturers make profit and helps them sustain in the market while managing competitiveness. Incorrect costing can lead to financial losses and reduced sales in the garment industry.

Furthermore, it helps identify production costs and market demand, thereby evaluating the price of each product and assigning them appropriately to a specific range so that resources can be managed effectively and operational efficiency can be increased.

With the growing business in the apparel industry, maintaining affordability with ethical production in this crowded market has become difficult. However, even here, costing plays a significant role in keeping the business financially stable while fulfilling consumer expectations & market requirements.

Key Factors Influencing Garment Costing

Several factors influence costing in the textile industry, and each factor plays a vital role in deciding the final price of a product. In the garment industry, the final price of a product is decided by the availability of raw materials, labour wages & overhead expenses.

It is crucial to consider a well-calculated approach in garment costing and managing the supply chain because the companies that implement these carefully have a higher chance of profitability. However, the following factors contribute to deciding the costing:

Raw Material & Fabric Cost

In the garment industry, raw materials are one of the most basic expenses that influence costs. Regarding raw materials, prices can vary depending on the type of fabric, such as cotton, polyester, wool and silk. Even their quality, availability and location can cause a change in prices.

Apart from the raw materials, additional accessories added to clothes such as buttons, embroidery, zippers, laces and trimmings can also cause a difference in cost as these are expenses that enhance the quality of the final product and make it durable while providing an aesthetic appeal.

Several market conditions can also cause a difference in apparel costing, such as fluctuations in the price of cotton production, increases in taxes on import duties or changes in currency exchange rates. Due to these, price changes are noticed in fabric prices either negatively or positively.

Some other factors that influence fabric and material costs include:

• Quality of fabric
• Type of fabric
• Bulk purchasing
• Availability of raw materials
• Taxes
• Import duty fees

Labour overhead and operational expenses

Apart from direct costs like raw materials and fabric, some factors in garment industries also influence price fluctuations, including labour, overhead, and operational expenses. In the garment industry, labour cost constitutes a major fraction of production expenses.

Labour cost increases even more if a business relies on manual activities in apparel production. However, greater efficiency can help reduce labour costs. Typically, labour costs include factory workers’ expenses, wages, stitching operators, supervisors, quality inspectors, delivery agents, designers, etc.

Besides these labour costs, overhead and operational costs are also highly influential factors in costing, which mostly include factory rent, maintenance, electricity expenses, administrative fees and operational charges. However, these are equally distributed across the manufactured clothes.

Supply Chain And Logistics Considerations

Apart from basic factors like labour wages, overhead charges, and raw materials, supply chain and logistics are other factors that influence cost in the garment industry. These are considered to supply and deliver a final product, which includes shipping and transportation.

By managing these efficiently and optimizing an ideal supply chain, transportation expenses can be significantly lowered, resulting in higher profitability. Furthermore, a well-structured logistics plan will enhance your time, production schedule and budget.

Types Of Costing In The Garment Industry

The factors mentioned above are known to influence costing across garment industries. However, other types of Costing are still determined based on factors such as production stage, business ambitions and pricing strategy. These help a manufacturer estimate the appropriate production cost.

There are multiple types of costing that focus on other elements and are categorized accordingly, such as raw material, overhead, logistics, labour, etc. Some popular costing types include pre costing, which helps in the initial stage of production & profit-based Costing, which sets the final price.

Understanding these different types of costing is important for a business to optimize its production. Furthermore, manufacturers can follow a stable financial structure using highly efficient costing techniques. The following are the eight main costing types in the apparel industry.

1.   Pre Costing

Pre-costing refers to the primary estimation of the price in apparel production, which is decided before starting the final manufacturing process. Pre-costing helps manufacturers break down their profit margins and know their expectations of positive or negative selling results.

In pre-costing, manufacturers can make initial adjustments by estimating factors like fabric, labour, overhead, logistics, and trim charges before production begins. It helps them fetch the actual price of the final product & identify the market rate accordingly, which protects them from financial losses.

2.   Material Costing

Material Costing in the apparel industry refers to the basic cost, which includes the cost of fabrics, accessories and trims. This type of costing is extremely important for a manufacturer to understand because once the materials are imported at an ideal rate, the chances of profitability increase.

Most materials are priced based on fabric quality and depend on it’s fiber content, weave type, sourcing location and dyeing procedure. These are calculated using a consumption formula where fabric usage per garment is measured and multiplied by the fabric price per unit.

3.   Labor Costing

Labor Costing is the direct factor that influences costing in the apparel sector. This type of costing includes the wages of factory workers based on their skill level, production efficiency and labour-intensive tasks. The wages of supervisors, some officers, and inspectors are included.

These labour costs can be significantly managed if production efficiency can be streamlined. To achieve this, some factories use automatic sewing machines while others hire skilled workers who can rapidly contribute to the production of garments and optimize workflow.

4.   Overhead Costing

Overhead Costing is also an important indirect expense in garment production. Although such costs are not dependent on a single garment, they depend on the entire production batch. Typically, these include the expense of factory goods utilities, maintenance machinery, and administrative salaries.

Overhead expenses are usually distributed among the garments produced in a specific period to make it easier to maintain—furthermore, energy-efficient machinery, modern manufacturing techniques, and skilled laborers significantly lower factory overhead expenses.

5.   Development Costing

Development Costing is also an indirect factor that refers to costing in the apparel industry. It involves producing a batch of garments specifically designed and sampled before mass production, launching and marketing them in the market to identify trends and requirements.

Though these costs are not recoverable, once a design is approved, the remaining parts are produced based on those designs. These are then supplied to the market to recover expenses. Additionally, brands may limit sample production or use digital prototyping to lower development costing.

6.   Freight And Logistics Costing

When it comes to importing the raw material for garment production & exporting the fully prepared garment from the factory to the businesses, freight & logistics costs go into use. Transportation mode, shipment volume, trade policies & custom duty charges play a pivotal role in this type of costing.

When a manufacturer exports finished garments, additional charges such as customs duty, taxes, and some import restrictions increase their logistics costs. However, they can reduce such charges by managing the supply chain efficiently and entering into bulk shipping contracts.

7.   Profit Based Costing

Profit-based Costing refers to a factor that ensures whether the selling price of a product is profitable for the manufacturer, i.e., such costing focuses on setting the selling price while maintaining profitability. It includes the overall production cost and profit percentage.

A brand needs to give importance to this factor to remain profitable, whereby they should sell their products at an ideal price while maintaining competition in the market and not setting high profit margins. As a result, sales will increase, and overall earnings will also be boosted.

8.   Standard Costing

Standard Costing in apparel costing refers to a factor where manufacturers compare their standard (estimated) price with the actual production cost. This makes it easier for manufacturers to maintain cost efficiency, manage inventory and identify labour efficiencies for further production.

This costing method is especially used in large-scale production where large production batches are initiated. Its advantages include tracking financial performance and analyzing future production to plan production and estimate the cost of new batches.

How To Optimize Casting For Better Perfect Ability?

Optimizing Costing is one of the most important factors in the garment industry as it guarantees manufacturers lower input and maximum output without compromising quality. However, increasing raw material costs and labour wages do not allow such a strategy to be successful.

Despite these, if manufacturers adopt smart management steps for production, such as using machinery & automatic sewing machines and hiring skilled labour, in that case, it will result in a business sustained in the competitive market and achieving long-term growth in the apparel industry.

Conclusion: Why Effective Costing Matters In The Apparel Industry

Costing is considered the backbone of the apparel industry to provide sustainability to manufacturers in the market and keep them profitable. In the garment business, whether it is the cost of raw materials or indirect costs like sample production, financial losses can be incurred if not managed efficiently.

In this fast-paced industry and competitive market, adopting an effective casting strategy can be very beneficial for the brand, a detailed highlight of which is mentioned in this write-up so that manufacturers can achieve long-term growth in business and be successful in the apparel industry.