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Methods of Costing
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Cost plus costing
Calculates the cost of producing the product and adds on a
percentage (profit) to that price to give the selling price.
Include General & Administrative expenses
takes no account of demand
No way of determining if potential customers will
purchase the product at the calculated price.
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VALUEBASEDCOSTING
Pricing a product based on the perceived value.
P
ricing based on the demand for a specific product wouldhave a likely change in the market place.
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Marginal Cost
Cost for manufacturing additional unit for export and exporting cost.
Includes direct cost of material and labor only.
General & Administrative (G & A) expenses not included.
Assumes that indirect fixed costs are fully recovered from domestic sales.
For example, an item has a marginal cost of $1.00 and a normal sellingprice is $2.00, the firm selling the item would lower the price to $1.10 ifdemand has waned.
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FABRIC COSTING
Fabric is sold in three ways, and the
breakdown must have three separate sections.
Gray
PFD goods
Dyed goods
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FABRIC COSTING
Costs which are to be considered :
Direct cost
Indirect cost
Profit
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COSTOFWOVENFABRIC
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Factors which affect the cost
Type of raw material
Raw material cost includes cost of fiber or yarn.
The cost of the fiber will depend largely on its generic type -
cotton, linen, wool, silk, rayon, nylon, polyester, polyester cotton
blend etc, and also its quality.
The Yarn cost will depend on the count of the yarn -- finer the
yarn, more expensive it will be.
Combed yarns are more expensive than carded yarns.
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Amount of raw material or GSM of the fabric
GSM is directly dependent on the EPI and PPI or construction of thefabric and is inversely proportional to the count of the yarn.
Weight of warp in grams/sq mt of fabric = EPI x 0.6 / Count ofWarp = A
Weight of weft in grams/sq mt of fabric = PPI x 0.6 / Count of Weft
GSM = A+B
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Sizing and Chemicals Cost
The sizing cost depends upon the count of the yarns. Thecount becomes finer the size and chemical cost increases
as a rich solution, better quality of size and chemicals is
required for better strength.
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Production cost or
cost of weaving
process
It includes machine running
cost, maintenance, labour cost,
power & fuel, etc.
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Mill-made or power loom made
The weaving cost is expressed as paisa /pick/inch/sq mt.
For twill weave, the cost = 12 paisa/pick/inch/sq mt.
For satin weave, the cost = 12 paisa/pick/inch/sq mt.
In case ofP/V suiting, the cost ranges from 14 paisa/pick to 20 paisa/pick. For
1,000 m beam with dobby, the weaving cost is 17 paisa/pick and for 1,000 m
beam with jacquard is 20 paisa/pick.
For dobby, the cost = 12 paisa/pick/inch/sq mt.
For 2400 hook jacquard the cost = 40 paisa/pick/inch/sq mt.
For double beam fabrics like seer sucker, the cost is = 20 paisa/pick/inch/sqmt.
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Wastage and shrinkage
Wastage of 2 - 3% in warping and weaving and shrinkage of 1 - 1.5% fromloom to grey folding stage is included in the weaving cost.
About 92% of the fabric produced is sold as fresh.
The value loss is about 7% while running cotton material but is only 3% in
using polyester yarn.
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Dyeing costs Length: A minimum of 2,000 mt of fabric is accepted, if the quantity of the
fabric is more say 15,000 mt or 20,000 mt, then the processing charges will be
lowered by Rs 1 - 2/mt.
Width of the fabric: If the width of the fabric is doubled, the cost of the
processing is not doubled.
Eg, the cost of dyeing 40" width poplin is Rs 10, but the cost of dyeing 120"width fabric is Rs 22.
Shade%: Lighter the shade lower the cost.
Class of dye and quality: Some dyes are more expensive than the other. Eg,
Vat dyes are more expensive than reactive dyes and better expertise is
required for dyeing, so for the same shade the cost of a fabric with vat dyes is
more than a fabric dyed in reactive dyes.
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Colour:Within the same dye class some colours are more expensive
than the other. For eg, turquoise and reds are more expensive.
Metamerism: If the shades are matched in two or three lights onlythen the cost is less, but when the matching is required in all the six
lights, natural daylight , Tube light , Horizon ,Fluorescent, Ultraviolet
light.
Weight of the fabric-Capacity of the machine is expressed in weight ofthe material for lighter weight fabrics, more length of the material can
be processed at one time, so dyeing cost is reduced.
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Finishing cost
PROCESS COST
FLAME RETARDANT FINISH 15 RS/mt
ANTISTATIC FINISH 5 RS/ mt
ANTI STAIN 10 Rs/mt
ANTI WRINKLE 5 Rs/ mt
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If softeners are added in the jigger after dyeing, then the cost is Rs 10/kg
whereas if it is done on a separate machine and later stentring is done
then the cost is Rs 20/kg.
The quality of fabric is better in second case as the cover is better and
there is no shrinkage later.
Shrinkage and wastage - Generally a minimum shrinkage of 5 - 7% is
acceptable.
Cost of the fabric = Cost of grey fabric + dyeing charges + finishing
charges + shrinkage + wastage.
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Export cost include
Costing
FAS (Free along Side)
FOB (Free on Board) CIF (Cost Insurance and Freight)
LDP (Landed & Duty Paid)
L
ead time
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TARGET COSTING
Target costing is the process of determining
the maximum allowable cost for a new
product and then developing a prototype thatcan be profitably made for that maximum
target cost figure. A number of companies--
primarily inJapan--use target costing,
including Compaq, Culp, Cummins Engine,Daihatsu Motors, DaimlerChrysler, Ford,
Isuzu Motors, ITT, NEC, and Toyota etc.
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Target Cost = Anticipated selling price
Desired profit
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Determine Customer Wants and Price Sensitivity
Planned Selling Price is Set
Target Cost is Determined As: Selling Price Less Desired Profit
Teams of Employees from Various Areas and Trusted VendorsSimultaneously
Design ProductDetermine
Manufacturing Process
Determine
Necessary Raw
Materials
Costs are Considered Throughout this Process. The Process
Requires Trade-offs to Meet Target Costs
Once Target Cost is Achieved the Manufacturing Begins and
Product is Sold
TARGET COSTING PROCESS DIAGRAM
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Advantages of target costing
Proactive approach to cost management.
Orients organizations towards customers.
Breaks down barriers between departments. Implementation enhances employee awareness
and empowerment.
Foster partnerships with suppliers.
Minimize non value-added activities. Encourages selection of lowest cost value added
activities.
Reduced time to market.
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Disadvantages:
Target costing approach has the followingmain disadvantages or limitations:
Effective implementation and use requires thedevelopment of detailed cost data.
its implementation requires willingness tocooperate
Requires many meetings for coordination
May reduce the quality of products due to theuse of cheep components which may be ofinferior quality.
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REFERENCES
Bala Saroj,Associate Professor, PearlAcademy ofFashion, New Delhi Mrs Tripti Gupta,Assistant Professor, PearlAcademy ofFashion, New Delhi, January , 2009, THE INDIAN
TEXTILE JOURNAL.
http://www.ehow.com/how_5990766_cost-fabric-material.html