Cost of the goods includes the materials plus

direct labor plus factory overhead.

Cost of goods = Manufacturing cost + Overheads

Cost of goods in case of Domestic Supplier is
cost of material + CMT i.e cut make and trim
Cost of goods for foreign supplier is Landed
Duty Paid ( LDP ).
If a company is using its own factories for
manufacturing , it must determine the cost of
goods based upon the company cost basis
defined by its accounting systems.
Mark up include
Marketing and selling cost +
Product development cost +
Distribution cost +
Administrative cost +
Profit
Whole sale selling price is the price the
manufacturer or contractor charges the
retailer or wholesaler for each garment.

Whole sale Price = Cost of Goods + Mark up
The cost of goods is summarized under the
categories of
Direct Materials
Direct Labor and
Manufacturing Overhead
General operating Expenses

Direct Material include
Fabric
Thread
Trim
Approximately 60% cost is the Fabric cost
Fabric consumption should be measured
accurately based on the size ratio.
Maker Making and Marker utilization can be
effectively calculated by Computer Aided
Pattern Design Software.
Another factor that should be kept in mind is
the MOQ ( Minimum Order Quantities )
All other direct material such as trims ,
threads , buttons, zippers , labels, shoulder
pad and poly bag, quantities per garments
are measured in units, sets or yards.
For these material minimum order quantities
must also be considered.
Waste Percentage are to accommodate the
loss occurred at all stages.
Direct Labor includes those cost that change
the condition or physical appearance of raw
material.
Examples of direct labor functions are
cutting, bundling , folding , sewing and
finishing.
Movement of garment part from work station
to another would not be considered direct
because the raw material are in the same
condition from one work station to another.
Labor standards should be determined for
each style. These standards are calculated in
time units as standard allowed minutes (
SAMs) for each operation required to
produce a specific style.
SAM include allowance for personal time,
reduction in production performance due to
fatigue , and normally expected work delays,
which are classified as personal, fatigue and
delay ( PF & D )
Manufacturing overhead includes all the cost
of manufacturing except direct material and
direct labor.
Over heads are classified as fixed and
variable.
Variable overheads increases or decreases in
direct proportion to production volume.
Fixed overhead remain unchanged relative to
production volume.
Variable overhead included machine oil ,
sewing needles, a portion of powder and
machine parts.
Fixed overheads cost are property taxes ,
deprecation of factory facilities, light , heat ,
indirect labor and other cost of operating the
factory.
All cost over and above those included in the
total cost of goods of a product are general
operating expenses, which are refereed to by
some companies as general and
administrative expenses ( G&A). These cost
can be broken down into
Marketing and selling expenses.
Merchandising, Design & Product
development expenses
Distribution expenses
Administrative expenses
Cost accounting bridges the GAP between
financial accounting and Managerial
accounting.
Mangerial accounting is concerned with
providing information to managers that is
those inside the organization.
Financial accounting is concerned with
providing information to stock holders,
creditors, and others who are outside an
organisation

Following are three cost accounting strategies
for identification , measurement and
allocation of costs;-
1. Direct Costing
2. Absorption costing
3. Activity- Based costing
4. Blended Costing
One of the first costing strategies to be used by
apparel companies was direct costing ,
sometimes referred to as variable costing.
This method of costing applies only the variable
costs directly related to labor and material as
product costs or cost of goods.
All other cost such as non variable factory
expenses , marketing , product development and
general and administrative cost are allocated
through gross margins as either a fixed cost per
garment or as target gross profit percentage.

Style 1

Fabric 1.10$
Trimming 0.50$
Labor 0.47$
.
Cost of Goods 2.07$
Gross Margin contribution 1.48$

Whole Sale selling Price 3.55$


Style 2

Fabric 1.90$
Trimming 0.70$
Labor 1.38$
.
Cost of Goods 3.98$
Gross Margin contribution 1.48$

Whole Sale selling Price 5.46$

This form of costive is effective for
companies that manufacture staple product
lines with little variation in labor , product
development , and marketing costs.
Basic T-Shirts , Jeans are costed by this
method.
Another costing strategy is the absorption
costing , which allocates fixed manufacturing
overhead to each unit of production along
with variable manufacturing costs.
Absorption costing treats all cost of
production as product cost and therefore is
also referred to as Whole cost method.
This costing absorb all fixed and variable
manufacturing costs into the cost of goods,
which is used to establish inventory values.
Absorption costing focuses on differentiating
between manufacturing and non manufacturing
functions.
It takes into account the relative effect of
variable and fixed manufacturing overhead to
each style produced.
Allocating these cost to the product that
generates the cost gives a more equitable
distribution of manufacturing overhead and
doesnt burden low direct labor products with
overhead generated by high direct labor products

Style : 1

Fabric 1.10$
Trimming 0.50$
Labor 0.47$
Factory O.H. 0.49$
.
Cost of Goods 2.56$
Gross Margin contribution 0.80$

Whole Sale selling Price 3.36$


Style 2

Fabric 1.90$
Trimming 0.70$
Labor 1.38$
Factory O.H. 1.45 $
.
Cost of Goods 5.43$
Gross Margin contribution 0.80$

Whole Sale selling Price 6.23$

In this example , the variable manufacturing
overhead is applied to each product as a
percentage of the direct labor generated by
the product.
Increased number of seasons or offering per
year has put tremendous pressure on product
development and the costing . This has
resulted in a multilevel costing process ,
which includes :-
Quickie Costing ( Cost estimating )
Costing for Sale ( Cost Calculating )
Production Costing ( Cost monitoring)
Accounting Costing ( Cost reporting )