Session Cap 1

7/30/2019 Session Cap 1

1/24

COSTING OF APPAREL

PRODUCTS

Session I


2/24

Style A


3/24

Style B


4/24

N E X T

Technology

Images

Style C


5/24

What does it Mean?

Difference in Costing?

Costing Vs Pricing..


6/24

COST ACCOUNTING

The branch of accounting dealing with the classification,

recording, allocation, summarization and reporting of currentandprospective costs.

Study of profitability or otherwise for every line of activity with the objectiveof cost control and decision making besides the most economical andefficient use of scarce recourses.


7/24

Costing helps in periods of trade depression and trade competition

Aids in Price Fixation

Helps in estimate

Helps in channelising production on right lines

Wastages are eliminated

Costing makes comparison possible

Provides data for periodical profit and loss accounts

Aids in determining and enhancing efficiency

Helps in inventory control

Helps in cost reduction Assists in increasing productivity

Importance of Costing


8/24

Importance of Costing in Apparel Industry

Fashion changes are very quick

Prices are changing every season

For the same product buyers want better prices than

previous season

Expanded sourcing options

New types of retail outlets are growing


9/24

Too many variables exist today

New element of competitiveness due to more

sourcing options

Increasing number of new garment styles and enduses

New types of retail outlets,which means more

consumer categories


10/24


11/24

COSTING VS PRICING

COSTING

THE PROCESS OF ESTIMATINGTHE TOTAL RESOURSEINVESTMENT REQUIRED TO MERCHANDISE, PRODUCE ANDMARKET A PRODUCT

PRICING

THE PROCESS OF DETERMINING EXCHANGE VALUEOFGOODS THAT ARE MADE AVILABLE FOR SALEAMOUNTASKED OR RECIVED IN EXCHANGE OF PRODUCT


12/24

Classification of costs

Fixed, variable, semi variable and steps costs

Direct Cost, Indirect cost

Prime cost - Overheads

Products costs and period costs Direct and Indirect Costs

Shut Down and Sunk Costs

Opportunity Costs

Production, Administration, Selling & Distribution costs

Relevant and irrelevant costs


13/24

Fixed, Variable, semi variable Costs

The concept of fixed and variable costs ho lds good in

shor t runand hence it is more of a theoretical concept.

Hence those costs which tend to vary with outputorhave major relation with output should be termed as

variable costs. If a cost varies more than proportionality,then also it is a semi variable cost


14/24

STEP Costs

Fixed cost can further be classified into:

i) Committed fixed Costsii) Discretionary Fixed costs

Certain costs remain fixed over a range of activity and then jump to a

new level as activity changes. Such costs are treated as Step Costs

These cost may also b e taken as type of sem i var iable cos ts


15/24

Shut Down and Sunk Cost

When a Manufacturer shuts down his operations temporarily, he stillhas to incur expenditure on depreciation, rent, maintenance etc.

Such costs of the idle plant are called as Shut Down costs .

Sunk costsare historical or past costs which have been created bya decision that was made in the past that cannot be changed by anydecision that will be made in future.


16/24

Opportunity, Relevant & Irrelevant Costs

Which has been foregone on account of not using the facilities in

the manner originally planned

The term Opportunity costrefers to the alternative revenueforegone

Relevant cos tsare those which will be changed by managerial

decisions while i r re levant cos tscannot be affected and hence may

be ignored


17/24

Direct Costs

Direct material- actual cost of the material that will make

up the finished product

Direct Labor- Wages cost of those employees who

actually manufacture the finished product

Direct Expenses - incurred without which a specificproduct could not be made

DM+DL+DE = PRIME COST


18/24

Indirect Costs

Indirect materials- Materials used in factory which do

not form a part of the finished product

Indirect Labour- Wages of employees who work in the

factory but do not form a part of the finished product

Indirect Expenses- All other factory expenses

IM+IL+IE = FACTORY OVERHEADS


19/24

Fixed & Variable Costs

FC - costs that do not get affected by output of

business

VC - costs which vary with output of business

Semi-variable costs - Contain elements of both fixed

and variable.


20/24

General Operating Expenses

Administrative overheads are:

Indirect costs,which include the costs of operating thegeneral offices and departments that are not directlyinvolved with the product line but are essential to theoperation of the firm.

E.g.-merchandising, Accounting, MIS, secretarial,managerial staff.


21/24

For a company involved in fashion

merchandise,designing/new product development

becomes important

Designing includes costs of-Hiring designer(s),

Expenditure on travel to international

fairs/exhibitions to understand latest

trends/ideas,cost of experimenting with new

fabrics,prototype development

Skilled sample master/operators,sample yardageand trims.


22/24

Cost of managingFinance,accounts,shipping departments

Communication charges

Can u think of some more..???


23/24

Some Definitions .

PRIME COST DIRECT COSTS

PRODUCTION COST PRIME COST + OVERHEADS

TOTAL COST PRODUCTION COST + GENERALOPERATING EXPENSES

WHOLESALE PRICE TOTAL COST + PROFIT

RETAIL PRICE WHOLESALE PRICE + SELLING ANDDISTRIBUTION COST + MARK UP


24/24

Each Group Needs to bring Two

products of the same category..

Session Cap 1

Documents

Transcript of Session Cap 1