export merchandising 1

8/6/2019 Export Merchandising 1

1/27

Methods of Costing


2/27

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.


3/27

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.


4/27

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.


5/27

FABRIC COSTING

Fabric is sold in three ways, and the

breakdown must have three separate sections.

Gray

PFD goods

Dyed goods


6/27

FABRIC COSTING

Costs which are to be considered :

Direct cost

Indirect cost

Profit


7/27

COSTOFWOVENFABRIC


8/27

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.


9/27

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


10/27


11/27


12/27


13/27

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.


14/27

Production cost or

cost of weaving

process

It includes machine running

cost, maintenance, labour cost,

power & fuel, etc.


15/27

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.


16/27

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.


17/27

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.


18/27

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.


19/27

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


20/27

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.


21/27

Export cost include

Costing

FAS (Free along Side)

FOB (Free on Board) CIF (Cost Insurance and Freight)

LDP (Landed & Duty Paid)

L

ead time


22/27

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.


23/27

Target Cost = Anticipated selling price

Desired profit


24/27

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


25/27

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.


26/27

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.


27/27

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

export merchandising 1

Documents