I.

Objectives
Outline the elements of a basic cost sheet of a garment.
Describe cost plus method of pricing the garments.
Prepare final Absorption Costing chart, Marginal Costing chart and Activity Based Costing
chart.

II. Garment Costing

According to ICMA London, Cost Accounting is that part of Management Accounting which
establishes budgets and standard costs, and actual cost of operations, processes,
departments or products and the analysis of variances, profitability and social use of funds.
Cost Accounting is the classifying, recording and appropriate allocation of expenditure for
the determination of the costs of products or services and for the presentation of suitably
arranged data for purposes of control and guidance of management.

Apparel costing is used for a number of reasons, including for: Classification and sub-
divisions of Costs, Control of Materials, Labour and Overhead Costs, and for Business Policies.
It helps the management to take decisions. It helps to create an expansion strategy. Ensures
Optimum Profitability, and Helps the management to take suitable steps to meet seasonal
variations in volume and costs. etc.

Apparel costing is useful for Budgeting and for setting standards for Measuring Efficiencies.
It allows the best use of limited resources and is an instrument of Management Control. It
helps in Cost Audit, and Price Determination. It ascertains the cost per unit of different
products manufactured and provides a correct analysis of cost both by process and
operations. It discloses sources of wastages and acts as a guide to price fixation of products
manufactured. It ascertains the profitability of each product that is manufactured and
exercises effective control of stocks of raw materials at various stages. Implements cost
control systems. It guides the management in the formulation and implementation of
incentive bonus plans and helps in preparation of budgets and also helps in implementation
of budgetary control.
III. Elements of Costs
There are three main elements of costs. They are: Materials, Labour and other expenses.
Materials can be either direct material or indirect material. Labour can be direct or indirect.
Other expenses can be direct or indirect.
All Indirect Expenses give rise to Overhead expenses.
This includes: Production or Works overheads, administration overhead, selling overhead,
distribution overhead, research and development overhead.

1. Direct Materials
Direct materials include: All raw materials, materials specifically purchased, parts or
components purchased or produced, and primary packing materials.

2. Direct Labour
Direct labour includes: Labour engaged on the actual production, labour engaged in aiding
the manufacture, and specially required for production. For example, Inspectors.

3. Overhead
Overhead is the aggregate cost of indirect materials, indirect materials.

4. Division of Costs
Here are some ways that costs can be divided.
1. Prime Cost = Direct Materials + Direct Labours + Direct Expenses.
2. Works or Factory Cost = Prime Cost + Works or Factory Overheads.
3. Cost of Production = Works Cost + Administration Overheads.
4. Total Cost / Cost of Sales = Cost of Production + Selling Overhead + Distribution Overhead.

IV. Cost Classifications

Costs can be classified: By nature or elements or analytics, by functions, as direct or indirect
cost, by variability, controllability, normality, time, according to planning and control and for
managerial costs.
 1. By Nature, Elements or Analytics
Costs can be classified by Nature, Elements or Analytical classification: This includes
Material, labour and expenses.

2. By Functions
Cost can be classified by functions. Either by: Manufacturing and Production Cost, or by
Commercial Cost. This includes: (1) Administrative Cost. (2) Selling and Distribution Cost
and (3) Research and Development Cost.

3. As Direct or Indirect Cost

Costs can be classified as Direct and Indirect Costs.

4. By Variability
Costs can be classified by variability, such as: Fixed or Period Cost, Variable or Product Cost
and Semi-variability Cost.

5. By Controllability
Costs can be classified by controllability. These are: Controllable costs and Uncontrollable
costs.

6. By Normality
Costs can be classified by normality. These are: Normal costs and Abnormal costs.

7. By Time
Costs can be classified on the basis of time. These are: Historical costs and predetermined
costs.

8. According to Planning and Control

Costs can be classified according to planning and control. This includes: Budgeted costs and
Standard costs.
 9. For Managerial Costs
Costs can be classified for managerial purposes. This includes: Marginal costs, opportunity
costs, replacement costs, avoidable and unavoidable cost.
Cost is a measurement, in monetary terms, of the amount of resources used for some
purpose. According to the American Accounting Association - Cost is the foregoing, in
monetary terms, incurred or potentially to be incurred in the realisation of the objective of
management which may be manufacturing of a product or rendering of services.
Fixed or period costs are those costs which remain fixed in total amount, with increase or
decrease in the volume of output for a given point of time.
Fixed Cost per unit decreases as production increases, and increases as production declines.
Variable or product costs are those costs, which vary in total in direct proportion to the
volume of output. These costs per unit remain relatively constant with changes in
production.
Semi-Variable costs are the costs which are partly fixed and partly variable. Marginal cost is
the total of variable costs that is prime cost plus variable overhead. Extra cost incurred to
manufacture one extra unit of production.
Average Cost = Total Cost / Number of Units Produced

V. Methods of Costing
1. Job Costing:
Costs are collected and accumulated for each job, work order or project separately to analyse
the cost according to each job.
2. Contract Costing:
When the job is big and spread over long periods of time a separate account is kept for each
individual contract.
3. Batch Costing:
A Batch may represent a number of small orders passed through the factory in batch. Each
batch is treated as an unit of cost and separately costed. It is an extension of job costing.
4. Process Costing:
A separate account is opened for each process to which all expenditures incurred thereon
are charged so that cost per unit at each process can be ascertained.
5. Unit Costing:
Here the cost per unit of output and the cost of each item is ascertained. The manufacture is
continuous and units are identical.
6. Operating Costing:
It is used to ascertain the cost of services rendered. Example: Transport undertakings.
7. Operation Costing:
This takes into consideration the rejections in each operations for calculating input units and
cost. It refers to conversion cost from raw material to finished products.
8. Multiple Costing:
It represents the application of more than one method of costing in respect to the same
product.

VI. Techniques of Costing

These are: Uniform costing, Marginal costing, Standard costing, Historical costing, and Direct
costing.
1. Uniform Costing
It is the use of same costing principles and / or practices by several undertakings for common
control or comparison of costs.
2. Marginal Costing
It is the ascertainment of marginal cost by differentiating between fixed and variable cost. It
is used to ascertain the effect of changes in volume or type of output on profit.
3. Standard Costing:
A comparison is made of the actual cost with a pre-arranged standard and the cost. The cost
of any deviation (called variances) is analysed by causes.
4. Historical Costing:
It is ascertainment of costs after they have been incurred i.e. costs actually incurred on work
done in the past.
5. Direct Costing:
It is the practice of charging all direct costs, variable and some fixed costs relating to
operations leaving all other costs to be written off against profits in which they arise.
6. Cost Sheet / Statement of Cost
The particulars of the cost sheet includes, Direct materials, direct labour and direct expenses.
The Prime costs are the work overheads. The work cost is the administrative overheads. The
cost of production is the selling and distribution of overheads. The total cost as well as the
cost per unit for each of these should be calculated. There is no prescribed format for a cost
sheet. It may vary from industry to industry. Here is a specimen format of a cost sheet.
Remember a cost sheet is a statement, which shows the various components of total cost of
a particular product. A cost sheet is prepared on the basis of: Historical cost and Estimated
cost.

VII. Composition of Cost of Garment

In continuation of the other functions, a Production merchandiser is also required to do the
costing of the product. The costing is done by keeping in mind the cost of the various raw
materials, operating cost of the company, the competition and expected profit of the
organization. At the same time, it is necessary to keep in mind the buyers costing
expectations.
The cost of a garment depends on these components: Fabric, trims, cut Make and Trim
charges, value added services: printing, embroidery, washing, appliqu, testing of the
garment, quality, transportation and logistics cost, profit of the manufacturing organization.
All these components of garment cost depend upon certain parameters which drastically
affects above cost parameters. These parameters play a vital role when the production
merchandiser does the costing of garment; as these parameters are very dynamic and keep
fluctuating frequently. The parameters that affect the garment cost mostly are; Unit of
Measurement, MOQ, Incoterm decided between raw material vendor and garment
manufacturer, order quantity, etc.
Fabric
Fabric is generally the most significant factor in costing of garment. Fabric accounts for 60
to 70% of the total cost of basic-styled garments. In many cases, evaluating the quality and
the quantity of fabric consumed in the garment indicates better than any other factor, the
cost of producing it. The cost of fabric depends upon the type of fabric that is going to be
utilised in the garment.
The types of fabrics are: Woven / knitted fabric, power loom /automatic loom fabric, fibre /
yarn / fabric dyed fabric, fibre content of fabric, such as cotton, wool, polyester, silk, blended
fabric etc., type of dyeing and finish used, gram per square meter / weight of fabric, type of
yarn used, such as ring spun, open ended, or carded / combed etc.

Parameters that Affect the Fabric Cost

They are: Unit of measurement (UOM), fabric Minimum order quantity (MOQ), order
quantity, Incoterm used.
The unit of Measurement (UOM) is a quantity used as a standard of measurement. The Unit
of Measurement for woven fabric is normally in meters or yard, while knitted fabric
measured in Kilograms or some time it is in yards also. The merchandiser should aware of
unit of measurements while finding out the cost of fabric. Sometimes a buyer specifies the
UOM of fabric.

Minimum Order Quantity

Fabric Minimum Order Quantity (MOQ) is nothing, but the smallest quantity of a product that
a fabric manufacturer can supply. The MOQ depends on the type of fabric and on capacity of
vendor. The MOQ plays an important role while ordering the fabric, as it directly affects the
cost of garment.
If the order of fabric is below the estimated MOQ, then the vendor charges more cost as
compared to regular charges. Merchandisers need to keep the MOQ in mind, while doing the
costing of small quantity orders.
The cost of fabric may vary with the order quantity. The more the order quantity, the cost of
fabric can be optimised till a certain level. But again, this depends on the type of fabric
required, and fabric manufacturer capacity along with negotiations between fabric buyer
and supplier.

Incoterm Used
Incoterm used is a factor that makes a huge difference in fabric cost. While importing the
fabric from another country, a merchandiser needs to deal with the supplier for delivery of
the fabric on the basis of incoterms like EXW, FOB, CIF, DDP etc., based on which it will be
decided, as to who will bear the cost of transportation and risk.
No matter which incoterm is used, all the cost needs to be charged to buyer. If the fabric is
purchased by using EXW incoterm, then the merchandiser needs to add the transportation
cost along with the custom clearance charges and the price of fabric while calculating the
garment cost.

Calculating the Cost of Fabric

The cost of fabric can be calculated by the following way:
Yarn cost + fabric manufacturing cost (knitting or woven) + dyeing cost + finishing
cost = total fabric manufacturing cost
Dyeing cost indicates that if the fabric is yarn dyed or fibre dyed or piece dyed, the respective
cost will be added depending upon the fabric type. The Finishing cost includes heat setting
cost, normal finishing, compacting (knitted fabric) etc.,

Cost Calculation of Fabric in a Garment

Considering the knitted fabric and t-shirt as an end product, then fabric consumption can be
calculated as:
Fabric consumption in kg:
Fabric Length = Inseam + (Front rise + back rise)/2
= 125.5 cm
Fabric Width = Thigh * 2
= 147 cm
Total Fabric Consumption = 12 * (Length * Width * GSM)/107
= 12 * (125 * 147 * 193)/107
= 0.3546 * 12
= 4.255 kgs/dozen

These methods are used to calculate the fabric consumption roughly at sampling stage by
merchandiser. These formulas will give approximate calculation for pre-costing stage of the
garment. Sometimes fabric consumption is also done by forming the miniature marker by
CAD department. These are the constraints of fabric consumption: Fabric cutting width,
repeat size, pattern type to be informed to the CAD along with buyer tech-pack in order to
calculate exact width and consumption.

The marker efficiency considered 80-85% depending upon the fabric type i.e. solid dyed,
stripe, checks fabric. Efficiency can be changed depending upon the fabric parameters,
matching parameters of the buyer, type of style.

The buffer in the consumption should be added to the fabric by merchandiser, generally it is
0.03-0.08% of total fabric consumption. In case of trim fabric i.e. interlining the 10-20%
more buffers is kept while ordering the interlining, in order to maintain the inventory and to
avoid the shortage during the production and fabric wastage percentages, to be added also,
while calculating the fabric consumption. Considerable wastage depends on factory
practices, type of fabric and type of garment.

Trims
Trims include all materials other than fabric used in the garment. For example, most
garments have accessories such as threads, buttons, zippers, labels, elastics and
miscellaneous items. Quality and quantity of trim and labour required to apply it on garment
are directly related to cost of garment. The different trims have different UOM; even same
trim can have 2-3 different UOMs that can be summarised as:
 UOM of Trims Used in UOM
Garments Trims
Thread 6000 meter tube,
Meter Cone
Labels Unit
Zippers Unit

Apparel costing in the garment making process is one

of the most complex procedures. There are lot things
that go into pricing a single piece of clothing.
Purchasing of raw materials, cost of dyeing, knitting,
printing, transport cost, packaging, banking charges,
overheads and cost of trims and accessories used all are
included in it. The merchandiser and the top
management of a company are actively involved in deciding the cost of a garment.

The garment industry follows different techniques to

Fig 1: Process of apparel costing
determine the cost. However, broadly the following
things are taken into consideration: type of fabric, trims used, garment testing, cost of
logistics, profit of the organization, and value added services (printing, embroidery,
washing). There are other details that go into calculating the cost of a garment like unit of
measurement, quantity of the order, and type of dyeing and finishes used.

Fabric consumption

Once the sample is approved and a pattern is developed, the amount of fabric required per
unit is calculated. The fabric cost constitutes 60 to 70 percent of the total garment making
cost. The fibre content, spinning process used, fabric GSM (Gram Square Meter), and the
percentage of shrinkage and wastage in the fabric are also determined while deriving the
cost. The consumption for knitted garments is determined in kilograms while for woven it is
determined in yards. Two popular systems used for the calculation of amount of fabric
required per garment are mathematical and marker planning systems.

The mathematical system provides a rough estimate to the manufacturer and is generally
used in the sampling stage of production. The consumption of fabric for producing a certain
style of garment is calculated by measuring the length and the width of each and every piece
of the garment pattern. Either by using software like Computer Aided Design (CAD) and
Computer Aided Manufacturing (CAM) or manually the marker planning can be done.

Weaving or knitting cost

For knitted garments, the Gram Square Meter (GSM) of the fabric plays a vital role in costing.
The type of machines, fabrics & blends, and configurations used for knitting the fabric of the
garment affects the price of making. Similarly for woven apparels, the Ends per Inch (EPI)
are taken into account. The bigger the beaming length, the lesser will be the cost of weaving.
Hence, the beam size can increase or decrease the cost of making a garment. The kinds of
weave like twill, satin, and plain and the sort of machineries used for the particular garment
influence the weaving cost.
Dyeing cost

The use of a particular kind of dye and a certain shade of color impacts the dyeing cost of a
garment. For example dyeing a fabric in lighter shades costs less and VAT dyes are costlier
than reactive ones. Dyeing of specific colors like red and turquoise cost more than basic
colors like black and white.

Cost of Trims and accessories

Besides the fabrics, trims and accessories used to make the complete garment such as
zippers, buttons, sewing threads, embellishments, care labels, elastics, and cartons add up to
the cost. Threads used in a garment depend on the kind of seam used in it. There are various
ways to measure the amount of thread being used. At times, the amount of thread used is
calculated at the sample making stage itself. The weight of the thread cone is measured
before and after using the quantity, and the difference is calculated to identify the amount
actually consumed. The size, shape, and material used in trims like zippers, buttons, and
labels also sums up the cost of making a garment.

Value added services

Out of the ordinary processes carried out by the manufacturer like washing, printing, and
embroidery for the order of a particular buyer. Wet processing chemicals consist of
bleaching, softening, and neutralizing processes. Unique and advanced finishes for fabrics
can increase the cost of making a garment.

The above costs combine to determine the garment costing in an organization. However,
every company has their own method of deriving the cost of making a garment. The following
are the different methods of costing incorporated in the textile industry:

Marginal costing:
Marginal costs are variable costs consisting of labor and material costs, plus an estimated
portion of fixed costs (such as administration overheads and selling expenses). In companies
where average costs are fairly constant, marginal cost is usually equal to average cost.
However, in industries that require heavy capital investment (automobile plants, airlines,
mines) and have high average costs, it is comparatively very low.

The concept of marginal cost is critically important in resource allocation because, for
optimum results, management must concentrate its resources where the excess of marginal
revenue over the marginal cost is maximum. Also called choice cost, differential cost, or
incremental cost.

2. Activity based costing:

Cost accounting approach concerned with matching costs with activities (called cost drivers)
that cause those costs. It is a more sophisticated kind of absorption-costing and replaces
labor based costing system. ABC states that (1) products consume activities, (2) it is the
activities (and not the products) that consume resources, (3) activities are the cost drivers,
and (4) that activities are not necessarily based on the volume of production. Instead of
allocating costs to cost centers (such as manufacturing, marketing, finance), ABC allocates
direct and indirect costs to activities such as processing an order, attending to a customer
complaint, or setting up a machine.
A subset of activity based management (ABM), it enables management to better understand
(a) how and where the firm makes a profit, (b) indicates where money is being spent and (c)
which areas have the greatest potential for cost reduction. Developed by professors Robert
Kaplan and Robin Cooper of Harvard University in late 1980's.

Advantages of ABC system

ABC system besides providing more accurate basis for calculating product costs has other
benefits too, i.e., it serves as a mechanism for managing costs. It is in this area of cost
management and resource planning ABC has the greatest potential. Its benefits may be
summarized as under:
1. Measurement of performance: This is done by identifying responsibility or
accountability for cost behavior.
2. Price fixation: This is done by identifying the true cost of product or services.
3. Product Promotion: This is done by analyzing profit contribution and impact of inter
relationship of product or service.
4. Customer profitability: It helps to know which customers yield more profit. This is
done by identifying the cost or profitability of type of customer.
5. Choosing channel of distribution: This is done by analyzing the cost and performance
of alternative distribution channels.

3. Absorption costing:
A method of costing a product in which all fixed and variable costs are apportioned to cost
centers where they are accounted for using absorption rates. This method ensures that all
incurred costs are recovered from the selling price of a good or service. Also called full
absorption costing. See also direct costing, marginal costing.
Hence garment or apparel costing is an important tool for cutting costs, avoiding wastages,
and making optimum utilization of the available raw material and resources. Using an
appropriate method of garment costing can help in developing a better quality of style for
buyers and provide clarity to the process of manufacturing too.

Garment description- Van Heusen Mens Formal trouser

(a) Label: Label is a tag that gives a description of the performance an inherent in a fabric
for the purpose of aiding the consumer in selection. A label is a part of garments which
indicates the various instructions about garments. Label is attached with garments
by swing. There are following types of label are available-

Types of Label:
1. Main Label: Contains buyer name or brand name.
2. Size Label: Contains garments size.
3. Care Label: Provides information about washing, ironing, drying etc.
4. Integrated Label: Contains main label, care label, and size label in a
combination.

Fig 3: Main label: Contain brand name or buyer

name
 Fig 4: Size label: Contained garments size

Care label: It is attach at the side of garments & contain following three information-
Composition
Care code or symbol
Country of origin

Fig 5: Care label/wash label

Trims:
Zipper: A fastening device operating by means of two parallel rows of metal or plastic teeth
on either side of a closure that are interlocked by a sliding tab is called zipper. These are used
in industrial clothing, typical apparel garments as a closure in pants, skirt & dresses. Basically
it is the part of chain. The physical part of the zipper are shown in the following figure-

Fig 6: Zipper

Basic Part of Zipper:

1. Zipper Tape: Zipper tape is the woven fabric made by nylon or polyester or bland
fiber. It is treated as critical part of zipper because it should be DTM. It is attach by
swing with garments.
2. Teeth: It is made of brass, aluminum or plastic or nylon. Zipper is opened & closed by
these teeth.
3. Slider: It is used to open & close the zipper teeth.
4. Stopper: It controls the slider run out of the zipper.

Hook and bar or hook and loop: Contain 4 parts

 Fig 7: Hook & Bar

Button: Button is a knob or disc which can be attached to the garments as a means of
fastening or ornamentation. Button is an essential trim which is attached with garments as
functional or decorative purpose. Button can be made from different types of materials.
Mostly use metal & plastic.

The size of button is express as ligne where 1Ligne = 0.635m. At 1st button diameter is
measure through slide calipers & converted in to ligne.
According to the number of hole button can be classified as two types-
Accessories and Packaging:

Carton: Number of ply indicates the quality of a carton. There are

3 ply carton
5 ply carton
7 ply carton
9 ply carton etc.

Fig 8: Cartons for packaging

Poly Bag: There are two types- Individual & Blister.

1. Individual- one garment/bag
2. Blister- more than 1 to 100 garments/bag
 Fig 9: Polybags for packaging

Tags: Price tag

Fig 10: A woman shopping for clothing

ilooking a price tag on a shirt.
Price tag is something that indicates the price being charged for an item.

a. An example of price tag is a sticker saying that a shirt costs $10.99.

b. Something that is not for sale for any amount of money (like love) is an example of an
item on which you cannot put a price tag.
 Fig 11: Price tags

Cost of components of Trouser

Particulars Unit Unit Cost per Total
(meter or meter2) (quantity) unit (INR)
(INR)
1. Main Fabric 1.4*1.47 122 per m2 252
(81% Terylene;
19% Rayon)
2. Lining Fabric
i. Normal Lining
(Cotton- 2.05 99 203
Polyester
Blend)
ii. Pattern Lining 0.03*1 82 2.46
(100%
Polyester)
iii. Seam Lining 0.0588 79 4.645
 (100%
Polyester)
Total 210.105
3. Trims
i. Buttons 4 7 28
15 mm
5/8 Inch
24 Ligne
ii. Hook & Bar 1 7 7
iii. Main Label 1 1.8 1.8
iv. Size Label 1 1.0 1.0
v. Care Label 1 0.5 0.5
vi. Zipper 1 9.5 9.5
Total 47.8
4. Thread
Consumption
(100% Polyester)
i. 3-thread [(1.14*4)+(0.92*4)]*14 1.11
overlock = 115.36
(1 cm = 14
cm thread) 58 per roll
ii. Chain Stitch
(1 cm = 4 cm [(1.14*2)+(0.92*2)]*4 0.4
thread) = 40.48
iii. Lock Stitch
(1 cm = 2.5
cm thread) [2.5(38*2+46*2+72*2 1.66
+100+20+40+18)/100]
+40.48+115.36
= 171.79
Total 3.17
5. Fusing Material
i. Fly (Micro (20*6)+(4.5*20)=210/100 4.9/m 10.29
Fibre) = 2.1
ii. Waist Band 93*3.8 = 353.4/100
(Macro Fibre) = 3.534 10/m
Width = 35.54
0.75m

Total 45.83
6. Packaging
i. Plastic Bag 1 5 5
ii. Carton
a. Inner 1 9 9
b. Outer 1 80 6.6
(12
trousers)
iii. Tags 1 0.5 0.5
Total 21.1

Cost of Labour
Particulars Estimated Level of Cost/min or Cost/piece
SAM Skill unit
1. Inspection 0.28 Skilled 3.5 1
2. Spreading & 0.2 Skilled 3.5 0.7
Marking
3. CMT 0.1 Skilled 3.5 0.35
4. Sewing 22.3 Skilled 3.5 78.05
5. Finishing 0.5 Skilled 3.5 1.75
Total 82.2
Overheads Apportionment per piece
Particulars Basis of Unit Cost/unit Total
Apportionment
Factory Overheads
1. Indirect Material
i. Consumable Number 10 0.5 5
ii. Oil
grease/lubrican Millilitres 2 0.5 1
ts
2. Indirect Labour 50 3000/12480 12
i. Wages No. of Employees min
ii. Managers
Salary
3. Indirect Expenses
i. Factory Rent Floor Space 200*200 50000 1.25
and taxes (m2)
100000*5%/
ii. Depreciation Cost of Machine 5% 1000 5
iii. Lighting Light Points 100 100000
12480 0.25
Total 24.5

Absorption Costing
Particulars Amount Total
(INR) (INR)
1. Direct Material
i. Fabric 252.00
ii. Lining Fabric 210.11
 iii. Trims 47.8
iv. Thread
Consumption 171.79
v. Fusing Material 45.63
A. Material
Consumed 727.33
2. Direct Labour
i. Inspection 1.00
ii. Spreading & 0.70
Marking
iii. Cutting 0.35
iv. Sewing 78.05
v. Finishing 1.75 82.2
3. Direct Expenses
i. Packaging Costs 21.1 21.1
B. Prime Cost
(1 + 2 +3) 830.63
4. Factory Overheads 24.5
C. Works Costs 855.13
5. Office and
Administrative 12
Overheads
C. Office and
Administrative
Costs 867.13
(A + B + C)
4. Selling and Distribution
Overheads 15
D. Total cost of Sales
(A + B + C) 882.13
 E. Profit (140%) 1234.982
F. Sales
(D + E) 2117.112

Marginal Costing
Particulars Amount Total
(INR) (INR)
A. Sales 2117.112
B. Variable Cost
Direct Material
i. Fabric 252.00
ii. Lining Fabric 210.11
iii. Trims 47.8
iv. Thread
Consumption 171.79
v. Fusing Material 45.63 727.33
Direct Labour
vi. Inspection 1.00
vii. Spreading & 0.70
Marking
viii. Cutting 0.35
ix. Sewing 78.05
x. Finishing 1.75 82.2
Direct Expenses
ii. Packaging Costs 21.1 21.1
Selling and Distribution
Expenses 15
C. Contribution 1271.382
(A - B)
D. Fixed Costs
Factory Overheads 24.5
E. Profit 1246.882
 Activity based costing
Activity Cost driver base Cost driver Resource used by one unit
rate(Rs.)
Factory floor space Foot2 - 1.25
Electricity Kilowatt - 0.25
Water Gallons - 0.10
Quality control Units inspected 8000/8000pcs. 1
Packaging - inner Number of 9 9
products
Packaging - outer Boxes 80 (12 trouser) 6.6

Activity Cost Total transaction Rate per

transaction(Rs)
Machine setup 5,000/month 417 12
Quality inspection 10 1
Machine hour 33.47
worked
Material recipients 0.5
Total 47
General Ledger

Payroll taxes 1,000*64=64000 DIRECT COST=PAYROLL TAX+FRINGE

BENEFITS+UNEMPLOYMENT
INSURANCE=288000

Machine maintenance 500*64=32000 PURCHASE ODER

COST=MACHINEMAINTAINANCE+EQUIP.
DEPRICIATION+ELECTRICITY=160000

Purchasing Dept. labor 4,000*64=256000 PURCHASING DEPT SUPPLY+LABOUR

COST=272000

Fringe benefits 2,000*64=128000

Purchasing Dept. 250*64=16000

Supplies

Equipment depreciation 750*64=48000

Electricity 1,250*64=80000

Unemployment 1,500*64=96000
insurance

TOTAL 720000/12480=57.7