Chapter 7

The Cost Sheet Financing Your Support

The Cost Sheet

In this chapter, you will learn:• What factors determine the cost of a garment• How to estimate costs to produce and import a

product• Where to research duty and quota information for

a classification or product• What forms of payment are accepted when

importing merchandise

Cost Factors for Apparel ProductionCost Factors for Apparel Production

Fabric = 40-50%Fabric = 40-50% Cut = 20-30%Cut = 20-30% Make = 15-20%Make = 15-20% Trim = 5-10%Trim = 5-10% Logistics and Logistics and

transportation = 30-40%transportation = 30-40% Total = 100%Total = 100%

Compare categories Compare categories by percentages of by percentages of total costtotal cost

Fabric CostFabric Cost

40- 50% of total cost40- 50% of total cost Greatest expenseGreatest expense Price of fabric varies based on its fiber Price of fabric varies based on its fiber

and quality and quality Higher the quality the higher the cost Higher the quality the higher the cost Purchased by the total yardage needed Purchased by the total yardage needed

for production for production

Cut, Make and TrimCut, Make and Trim

All the steps of the production processAll the steps of the production process

• 20-30% for total cost of product20-30% for total cost of product• 15-20% labor costs15-20% labor costs• 5-10% accounting for trim5-10% accounting for trim• Trim includes buttons, zippers, thread, Trim includes buttons, zippers, thread,

snaps, hooks snaps, hooks• The more difficult the fabric, the higher the The more difficult the fabric, the higher the

labor costs and vice versa labor costs and vice versa

Logistics and TransportationLogistics and Transportation

30-40% of total cost – logistics and transportation30-40% of total cost – logistics and transportation

• Least expensive is shipping by seaLeast expensive is shipping by sea• Most common container size is 40 feet - 2,200 cubic feet • Sizes come in 20, 40 and 45 feet containersSizes come in 20, 40 and 45 feet containers• Most expensive is by airMost expensive is by air• Less- than-container load (LCL) charges may be applied Less- than-container load (LCL) charges may be applied if container is not fullif container is not full• Consolidator shipmentsConsolidator shipments• A product that contains product is a A product that contains product is a master cartonmaster carton

Logistics and Transportation Costs

Total dollar amount charged to transport the container from foreign port to US. applies whether the container is full or not.

• If there are 3,600 garment in a 40 foot container traveling from Hong Kong to Long Beach, the cost of freight per item is $.0725 per garment.

• If there are only 2,400 garments in the container, the cost of freight per garment is $1.09

Maersk

Inbound Container Freight Costs

Asian Origin Port to Long Beach, California

Maersk Carrier of the Year – Target Corporation Origin Cargo Manager of the Year – Wal-Mart

Example $2610 freight from Hong Kong to Long Beach

3,600 units =$0.725 per garment 2400 units =$1.09 per garment

Duty and Category ClassificationDuty and Category ClassificationInteractive Tariff and Trade DataInteractive Tariff and Trade Data

DutyDuty- tax that U.S customs imposes on merchandise - tax that U.S customs imposes on merchandise imported into the U.S. imported into the U.S.

HTSHTS- Harmonized Tariff Schedule- a system used to - Harmonized Tariff Schedule- a system used to establish and list duty by classification and fabricestablish and list duty by classification and fabric• Types of dutiesTypes of duties

• Ad valoremAd valorem

• Specific rateSpecific rate

• Combination rateCombination rate

• Absolute quota VS. Tariff- rate quotaAbsolute quota VS. Tariff- rate quota

USTTD

USITC

USITC

US ITC

trousers

Sample Cost SheetSample Cost Sheet

The quote from the supplier :The quote from the supplier :

The quote will include:The quote will include:

The item number, total quantity of units, Item The item number, total quantity of units, Item description and specifications, Unit type, description and specifications, Unit type, Free on Free on board priceboard price (FOB), Case dimensions and cubic feet (FOB), Case dimensions and cubic feet measurement, Item weight, gross and net weight, measurement, Item weight, gross and net weight, FOB port, country of origin, minimum order quantity, FOB port, country of origin, minimum order quantity, quantity to fill container, and the production timequantity to fill container, and the production time

QuotationsQuotations

• Quotation from buyer Quotation from buyer to seller on the cost to seller on the cost sheet includes:sheet includes:

• Item numberItem number

• Total quantity of unitsTotal quantity of units

• Item description/specificationsItem description/specifications

• Unit typeUnit type

• FOB price (free on board)FOB price (free on board)

• Case dimensions and cubic Case dimensions and cubic feet measurementfeet measurement

• Item weightItem weight

• Gross weightGross weight

• Net weightNet weight

• FOB portFOB port

• Country of originCountry of origin

• Minimum order quantityMinimum order quantity

• Quantity to fill containerQuantity to fill container

• Production timeProduction time

Payment for the Imported MerchandisePayment for the Imported Merchandise

• Pro forma invoicePro forma invoice

• All information for the sales of goods as All information for the sales of goods as documentation for the buyer to confirm documentation for the buyer to confirm the total cost for the goods; final invoice the total cost for the goods; final invoice will follow will follow

Sample Pro Forma InvoiceSample Pro Forma Invoice

Payment for the Imported MerchandisePayment for the Imported Merchandise

pro forma invoicepro forma invoice-- sent at the beginning of a sale includes all information sent at the beginning of a sale includes all information for the sale of the goods as documentation of the buyer to confirm the total for the sale of the goods as documentation of the buyer to confirm the total cost for the goodscost for the goods

letter of creditletter of credit (LC)- (LC)- a formal document issued by a bank stating its a formal document issued by a bank stating its guarantee to pay the seller (exporter) a stated amount of money on behalf guarantee to pay the seller (exporter) a stated amount of money on behalf of the buyer (importer) as long as the seller meets specific terms and of the buyer (importer) as long as the seller meets specific terms and conditionsconditions

wire transferwire transfer-- electronic transfer of funds from buyer’s bank to seller’s electronic transfer of funds from buyer’s bank to seller’s bank to pay for merchandise or servicebank to pay for merchandise or service

cash in advancecash in advance (CIA)- (CIA)- payment of all or a percentage of the total amount payment of all or a percentage of the total amount due for merchandise prior to shipment of the merchandisedue for merchandise prior to shipment of the merchandise

Payment Methods for Payment Methods for Imported MerchandiseImported Merchandise

Cash in Advance Cash in Advance (CIA):(CIA): seller demands payment seller demands payment in advance if:in advance if:

the buyer is dealing with the exporter for the first time the buyer is dealing with the exporter for the first time and is not familiar with the buyer’s companyand is not familiar with the buyer’s company

if the merchandise is a custom order produced if the merchandise is a custom order produced specifically for the buyerspecifically for the buyer

Usually required before the seller ships goods to Usually required before the seller ships goods to the buyer.the buyer.

Also…Also…

If buyer needs to finance the import sale, some If buyer needs to finance the import sale, some foreign countries offer financial assistanceforeign countries offer financial assistance

Check with government of exporting country Check with government of exporting country to see if financial program is available.to see if financial program is available.

FOBFOB (price quote to buyer)(price quote to buyer) is usually the price of is usually the price of delivery to a foreign port of export.delivery to a foreign port of export.

•It is a direct import if buy takes shipped It is a direct import if buy takes shipped merchandise at the foreign portmerchandise at the foreign port

Buyer can request to quote merchandise at Buyer can request to quote merchandise at POEPOE (price quote to entry)(price quote to entry) cost if buyer’s cost if buyer’s company does not work with a freight company does not work with a freight forwarder.forwarder.

•Buyer takes possession of merchandise in U.S Buyer takes possession of merchandise in U.S instead of foreign port.instead of foreign port.•Quote includes ocean freight and duty.Quote includes ocean freight and duty.

Buyers that work with vendors that operates Buyers that work with vendors that operates and ships merchandise to a warehouse in the and ships merchandise to a warehouse in the U.S. are able to request an U.S. are able to request an indirect importindirect import orderorder..

Merchandise that does not fill a container is Merchandise that does not fill a container is shipped to a U.S. warehouse with other shipped to a U.S. warehouse with other merchandise in order to fill an entire container.merchandise in order to fill an entire container.• Quoted cost in this case includes duty and freight costs for shipping Quoted cost in this case includes duty and freight costs for shipping

from foreign port to U.S. as well as freight for shipping from entry from foreign port to U.S. as well as freight for shipping from entry port to warehouse.port to warehouse.

Estimated Laned Cost (ELC)-Estimated Laned Cost (ELC)- a quote with a quote with FOB FOB (cost, duty charges, and freight to the port of entry.)(cost, duty charges, and freight to the port of entry.)

Cross-dockedCross-docked-- merchandise that comes into a merchandise that comes into a warehouse and is later shipped back out to warehouse and is later shipped back out to the customer.the customer.

All processing is handled overseas so vendor can All processing is handled overseas so vendor can offer cost savings to the buyer because there is no offer cost savings to the buyer because there is no need to pay for domestic processing fees.need to pay for domestic processing fees.

• Letter of creditLetter of credit

• Payment for imported merchandisePayment for imported merchandise

• A guarantee to the seller that the buyer has A guarantee to the seller that the buyer has the funds to make the purchase, that the the funds to make the purchase, that the funds are reserved for the seller, and that funds are reserved for the seller, and that payment will be receivedpayment will be received

Letter of Credit exampleLetter of Credit example

• Wire transferWire transfer

• Another method of paymentAnother method of payment

• Buyer’s bank electronically sends money Buyer’s bank electronically sends money to to seller’s bankseller’s bank

• Speedy, but if seller wants money before Speedy, but if seller wants money before merchandise is shipped, buyer has very little merchandise is shipped, buyer has very little control of merchandise control of merchandise

Cash In Advance Cash In Advance (CIA)(CIA)

The buyer may negotiate paying a portion, such The buyer may negotiate paying a portion, such as 1/3 of the total cost, before the shipment, and as 1/3 of the total cost, before the shipment, and pay the 2/3 upon shipment.pay the 2/3 upon shipment.

Some foreign countries offer financial assistance Some foreign countries offer financial assistance if the buyer needs to finance the import sale.if the buyer needs to finance the import sale.

Check the government of the exporting company Check the government of the exporting company to see if financial programs are available.to see if financial programs are available.

• Thanks so much!