COSTING OF APPAREL
PRODUCTS
Session I
ACCOUNTING
Financial ACCOUNTING
Management ACCOUNTING
Cost ACCOUNTING
FINANCE AND ACCOUNTS
Closely Linked
Accounting is sub function of Finance
Accounting generates data/Information
The End Product of Accounting assists in Past performances &
Future Directions
Difference
Treatment of Funds –
Accrual system for measuring Funds Vs Cash inflow & outflow
Decision Making –
Collection of Data Vs financial Planning, Controlling & decision
Making
FINANCE & OTHER DISCIPLINES
FINANCIAL DECISION AREAS Primary disciplines
accounting
Macroeconomics
Microeconomics
Investment Analysis
Working capital Management
Sources & cost of Funds Other Related disciplines
Marketing
Determination of capital structure Production
Quantitative Methods
Dividend Policy
Analysis of risk & returns
Shareholder Wealth Maximization
SCOPE OF FINANCIAL MANAGEMENT
Traditional Approach
Procurement of Funds
Accounting generates data/Information
The End Product of Accounting assists in Past performances & Future
Directions
Modern Approach
Investment Decision –
Capital Budgeting
Working Capital
Financial decision –
Dividend Policy decision -
OBJECTIVES OF FINANCIAL MANAGEMENT
Profit Maximization Decision Criterion
Select assets, Projects and Decisions Which are Profitable
Reject assets, Projects and Decisions Which are not Profitable
Limitations
Ambiguity
Timing of Benefits
Quality of Benefits
Wealth Maximization Decision Criterion
Concept of Cash Flows Generated by Decision
Consideration of Quality & Quantity Dimension of Benefits
Organization of Finance Function
Board of Directors
MD/Chairman
VP/Director (Finance)
Treasurer Controller
Cash Manager Tax Manager
Credit Manager Data Processing Manager
Capital Expenditure Managerl Cost accounting Manager
Portfolio Manager Finance/Accounting Manager
COST ACCOUNTING
The branch of accounting dealing with the
classification, recording, allocation, summarization and
reporting of current and prospective costs.
Study of profitability or otherwise for every line of
activity with the objective of cost control and decision
making besides the most economical and efficient use of
scarce recourses.
Managerial accounting
Managerial accounting provides the
essential data with which the organizations
are actually run. Managerial accounting is
also termed as management accounting or
cost accounting.
Why do we Pay different price
for different styles?
Style A
Style B
Importance of Costing Today
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
Too many variables exist today
New element of competitiveness due to
more sourcing options
Increasing number of new garment
styles and end uses
New types of retail outlets,which means
more consumer categories
Why the differences in pricing?
What does it Mean?
Difference in Costing?
Costing Vs Pricing…..
COSTING VS PRICING
COSTING – THE PROCESS OF ESTIMATING
THE TOTAL RESOURSE INVESTMENT
REQUIRED TO MERCHANDISE, PRODUCE
AND MARKET A PRODUCT
PRICING – THE PROCESS OF DETERMINING
EXCHANGE VALUE OF GOODS THAT ARE
MADE AVILABLE FOR SALEAMOUNT ASKED
OR RECIVED IN EXCHANGE OF PRODUCT
Classification of costs
Direct and Indirect
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
specific product could not be made
DM+DL+DE = PRIME COST
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
Fixed and Variable
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.
Prime cost Vs Overheads
Factory Overhead
General Operating Expenses
Administrative overheads are:
Indirect costs,which include the costs of
operating the general offices and
departments that are not directly involved
with the product line but are essential to
the operation of the firm.
E.g.-merchandising, Accounting, MIS,
secretarial, managerial staff.
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
yardage and trims.
Cost of managing
Finance,accounts,shipping departments
Communication charges
Can u think of some more…..???
Selling and distribution Overhead
Some Definitions ……….
PRIME COST – DIRECT COSTS
PRODUCTION COST – PRIME COST +
OVERHEADS
TOTAL COST – PRODUCTION COST +
GENERAL OPERATING EXPENSES
WHOLESALE PRICE – TOTAL COST + PROFIT
RETAIL PRICE – WHOLESALE PRICE +
SELLING AND DISTRIBUTION COST + MARK UP