FINANCIAL MANAGEMENT FOR TEXTILE INDUSTRY

(TT3752)
UNIT:1 INTRODUCTION OF COSTING
COSTING:
In financial management, costing is the systematic process of identifying,
measuring, and analyzing all expenses incurred by a business to produce a
product or deliver a service.

CONCEPTS:
Concepts of cost refer to the monetary valuation of resources
sacrificed to achieve an objective, such as producing goods or
services, and are fundamental for business decision-making, accounting,
and economic analysis.

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The different Methods of Costing
1. Job Costing

Job costing is a type of accounting where the cost of each job is taken into
account and calculated. This method is applied to the production units
that don’t involve more repetitive tasks.

2. Contract Costing

Based on the underlying principles job costing and contract costing are
similar. However, the difference is that the contrast costing task is big and
the job costing is comparatively small. Both the costing methods are
referred to as terminal costing.

3. Cost-plus Costing

This method is one component of contract costing. Cost-plus costing is

implemented when, in a contract, the contractor receives both the
predetermined contract price and an additional mutually agreed-upon
amount.

4. Batch Costing

Batch costing is the practice of grouping orders or tasks into distinct

batches, considering the efficient production of items as a primary factor.
Here, the cost is determined based on the group of products.

5. Process Costing

Process costing is applicable when a product undergoes various

sequential phases, each of which is clearly defined, distinguishable, and
easily separable from the others. In addition, process costing is beneficial
to calculate the cost at each stage in the production process.

6. Single Costing

Single costing involves determining the cost per unit of output or

production. This costing method is also known as output costing or unit
costing. Every component comprising this cost is individually calculated.
Single costing method is suitable for industries such as paper mills, brick-
making and flour mills.

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7. Operating Costing

Operating costs are applicable to companies that provide bus, electricity

and transport services. It helps in calculating the costs incurred in
providing those services.

8. Multiple costing

In multiple costing, the costs incurred from multiple sections are

combined after determining the expenses of each manufactured
component. This costing method is very useful for the automotive industry
and industries dealing with the production of assembly parts.

9. Departmental Costing

The main objective of departmental costing is to determine the cost of

outputs separately for each department. If any company has multiple
departments, departmental costing is the best solution to calculate and
ascertain costs.

10. Operation Costing

Operation costing is an enhanced version of process costing. It is best

applicable when a repetitive or mass production process is carried out. It
is also used if the components are in a semi-finished stage.

STANDARD COSTING:
Standard costing is a management accounting technique where a
standard, or predetermined, cost is set for each product or service,
covering expected costs for materials, labor, and overhead.
ANALYSIS OF VARIANCE (or simply Variance Analysis)
A Technique that compares actual financial outcomes against planned or
budgeted amounts to understand the differences and their causes
CLASSIFICATION OF COSTING

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Format of Cost Sheet

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What is a Cost Sheet? A cost sheet is a financial
document that provides the details of costs that the business
has incurred in producing a particular product during a specific
period.
COST PROFIT VOLUME

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Cost-Volume-Profit (CVP) analysis is a financial management technique
that examines the relationship between costs, sales volume, and profit to
help businesses make informed decisions.

BREAKEVEN ANALYSIS
Break-even analysis is a financial calculation that identifies the point at
which a business's total revenue equals its total costs, resulting in neither a
profit nor a loss.

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UNIT:2 COST ACCOUNDING FOR TEXTAIL INDUSTRY
COSTING OF YARN:
Yarn costing involves calculating the total production expenses by adding
raw material costs (like cotton, polyester), conversion costs (including labor,
power, and factory overheads like rent and wages), and folding costs if it's
folded yarn, to arrive at the final cost per unit of yarn.
COSTING OF FABRIC:
Fabric costing involves calculating the total expenses incurred to produce
fabric, primarily determined by raw material costs, labor, utilities, and
overheads.
COSTING OF GARMENTS:
Garment costing is the process of calculating all expenses to produce a
garment, including materials (fabric, trims, labels), labor (direct and
indirect), and overhead (utilities, rent, administrative costs), plus logistics
and the manufacturer's profit.

The GST (Goods and Services Tax) on yarn, fabric, and garments in India
is being simplified with a new two-slab system of 5% and 18%, effective
September 22, 2025, eliminating previous 12% and 28% slabs. Man-made
fibers and yarns will now be taxed at 5% instead of 18% and 12%
respectively, and finished textile products and apparel will be taxed at 5%
or 18% depending on their value. Garments priced below ₹1,000 will be
taxed at 5%, while garments priced above ₹1,000 will be taxed at the
standard rate of 18%.

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Yarn Cost Calculation
Exercise 1:

The clothing manufacturing company received an order for the

development of fabric with the following description. The fabric is 100%
linen warp and 100% acrylic weft with 65 EPI and 60 PPI respectively. The
warp and weft counts of the fabric are 2/100s and 120 denier respectively,
while the warp and weft crimps are 4% and 8%, respectively. Calculate the
cost of yarn per square metre. Here’s what the yarn price is, linen yarn is
Rs.450 per kg, acrylic yarn is Rs. 285 per kg.

Solution

Here,

Ends per inch (EPI)= 65


Picks per inch (PPI)= 60

 warp count= 2/100= 50s
 weft count= 120 denier
 warp crimp =4%
 weft crimp= 8%
 Linen yarn price per kg= Rs. 450
 Acrylic yarn price per kg= Rs. 285
We know that,

 warp weight= {EPI×39.384×453.4×(crimp+100)}÷(warp

count×0.914×840×100)
 warp weight=
{65×39.384×453.4×(4+100)}÷(50×0.914×840×100)= 31.45 gram
Let’s convert the weft count from denier to English count (Ne)

 English count (Ne)= 5315÷Denier= 5315÷120= 44.29

Now,

Weft weight= {PPI×39.384×453.4×(crimp+100)}÷(weft

count×0.914×840×100)
 Weft weight=
{60×39.384×453.4×(8+100)}÷(44.29×0.914×840×100)=34.04 gm
Now calculate yarn cost

 Total weigh of the fabric= warp weight+ weft weight=

31.45+34.04= 65.49 gm

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  Cost of warp yarn= warp weight (gm)× yarn cost per kg
 Cost of warp yarn= 31.45 × (450÷1000)= Rs. 14.15
 Cost of weft yarn= 34.04 × (285÷1000)= Rs. 9.7
 Total cost of yarn per square metre of fabric= 14.15+9.7= Rs.
23.85

Exercise 2:

An export company of knit garments received an order for the

development of knitted fabric. Besides being made of 100% cotton, the
fabric has the following other characteristics: 85 CPI, 80 WPI, 40s ne and
0.95mm loop length. Taking cotton yarn as a price of Rs. 280 per kilogram
and knitting shrinkage of 5%, calculate the cost of the yarn per square
meter.

Solution:

Here,

 Course per inch(CPI)= 85

 Wales per inch (WPI)= 80
 Yarn count= 40s
 Loop length= 0.95 mm
 Knitting shrinkage= 5%
 Cotton yarn price= Rs. 280
Now,

Loop density= course per inch× wales per inch= 85×80= 6,800

We know,

 Yarn length (m)= {(loop density × 39.384 × 39.384 × loop length

(mm)}÷1000
 Yarn length (m)= {(6,800 × 39.384 × 39.384 × 0.95}÷1000=
10020.1 meter
Now,

Gsm= {0.59 × yarn length(m) × (100+ shrinkage)}÷ { count

(ne)×100}
 Gsm= {0.59 × 10020.1× (100+ 5)}÷ {40×100}= 155.19 gm
Now, calculate the yarn cost

 Yarn cost= yarn weight per square metre × yarn price

 Yarn cost= 155.19 × (280÷1000)= 43.45 per square metre.

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Total yarn cost is Rs. 43.45 per square metre.

Woven Fabric Costing

Example 1:

An industry that manufactures woven fabrics received an order

for the development of fabric based on the following description
with a 30,000 metre order quantity. This fabric is 100% cotton
with 85 EPI and 80 PPI, 65s Ne warp and 45s Ne weft, and 6%
crimps on the warp and 7% on the weft. Based on the fabric add
on and other cost details in the table 1, calculate the woven fabric
costing per square metre. Fabric width of 56 inches is produced in
the weaving shed.
S/N Particulars Price in Rs./Kg
1. 60s cotton yarn 300
2. 40s cotton yarn 200
3. Rate of a pick 0.25
Scouring and
4. 120
bleaching
5. Dyeing (5%) 70
6. Silicone finishing (8%) 60
Table 1: Fabric particulars and their costs

Solution

Step 1: Calculate total weight of the fabric

 Warp weight= {EPI×39.384×453.4 × (crimp+100)} ÷ (warp count
× 0.914 × 840×100) = {85×39.384×453.4 × (6+100)} ÷ (65 ×
0.914 × 840×100)= 32.24 gram
 Weft weight= {PPI×39.384×453.4 × (crimp+100)} ÷ (weft count ×
0.914 × 840×100) = {80×39.384×453.4 × (7+100)} ÷ (45 × 0.914
× 840×100)= 44.24 grams
 Total weight of the fabric = 32.24+ 44.24= 76.48 gram per square
metre
Step 2: total cost of yarn
 Cost of the warp yarn= weight in gram × yarn cost/kg= 32.24 ×
(300 ÷1000)= Rs. 9.67
 Cost of the weft yarn= weight in gram × yarn cost/kg= 44.24 ×
(200 ÷1000)= Rs. 8.85

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 Total cost of yarn per square metre of the fabric= 9.67+ 8.85= Rs.
18.52
Step 3: Calculate grey fabric cost per square metre
 Weaving cost of the fabric per square metre= fabric width × pick
rate= 56 × 0.25= Rs. 14
 Cost of the grey fabric= yarn cost + weaving cost= 18.52+ 14=
Rs. 32.52
Step 4: Processing cost calculation
 Scouring and bleaching cost = Rs. 120 per kg
 Cost per square metre= 120 × ( 76.48 ÷ 1000)= Rs. 9.18
 Dyeing add on= 76.48 × (5% of 76.48)= 80.30 gram per square
metre
 Dyeing cost= 70 × (80.30 ÷1000)= Rs. 5.62
 Finishing add on= 80.30 + ( 8% of 80.30)= 86.72 gram per
square metre
 Finishing cost= 60 ×(86.72÷ 1000)= Rs. 5.20
 Total processing cost= 9.18+5.62+5.20= Rs. 20
Step 5: Calculate final woven fabric costing
 Final woven fabric cost= Grey fabric cost + processing cost=
32.52 +20= Rs. 52.52

Example 2:

A woven fabric manufacturer received an order for the

development of fabric with the following description for 30,000
metres. Featuring 70 EPI and 60 PPI, the warp count is 60s Ne and
the weft count is 80 denier, and the warp and weft crimps are 5%
and 7%, respectively, the fabric is made up of 100%
mercerized cotton in the warp and 100% polyester in the weft.
With 1.65 square metres of fabric consumed by each shirt, the
fabric consumption is significant. The fabric has been processed
through souring, bleaching (2%), dyeing (4%), and finishing (6%).
The weaving shed produces fabric with of 56 inch. Fabric add on,
weight loss percentage and other raw material price is given table 2.
S/N Particulars Price in Rs./Kg
1. 60s cotton yarn 400
2. Polyester yarn 300
3. Rate of a pick 0.35
4. Scouring 100
5. Bleaching(2%) 80
6. Mercerization 90
7. Dyeing(4%) 75

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 8. Silicone finishing(6%) 100
Table 2: Fabric particulars and their costs

Solution

Step 1: Calculate total weight of the fabric

 Warp weight= {EPI×39.384×453.4 × (crimp+100)} ÷ (warp count
× 0.914 × 840×100) = {70×39.384×453.4 × (5+100)} ÷ (60 ×
0.914 × 840×100)= 28.50 gram
 Covert the weft count from denier to English count (Ne)= 5315÷
denier= 5315÷ 80= 66.43
 Weft weight= {PPI×39.384×453.4 × (crimp+100)} ÷ (weft count ×
0.914 × 840×100) = {60×39.384×453.4 × (7+100)} ÷ (66.43 ×
0.914 × 840×100)= 22.48 grams
 Total weight of the fabric = 28.50 +22.48= 50.98 gram per square
metre
Step 2: Calculate total cost of yarn
 Cost of the warp yarn= weight in gram × yarn cost/kg= 28.50m ×
(400 ÷1000)= Rs. 11.4
 Cost of the weft yarn= weight in gram × yarn cost/kg= 22.48 ×
(300 ÷1000)= Rs. 6.74
 Total cost of yarn per square metre of fabric= 11.4+6.74= Rs.
18.14
Step 3: Calculate grey fabric cost
 Weaving cost of the fabric per square metre= fabric width × pick
rate= 56× 0.35= Rs. 19.6
 Cost of the grey fabric= yarn cost + weaving cost= 18.14+ 19.6=
Rs. 37.74
Step 4: Calculate GSM every processing step
NB: the values inside the brackets near the processing step are
weight add-on % for dyeing and finishing but weight loss
percentage for bleaching.
 Wight loss after bleaching= 50.98× 2%= 1.02
 Since it is weight loss, the final GSM is = 50.98-1.02= 49.96
 GSM after dyeing= 49.96+ (4% of 49.96)= 51.96
 GSM after finishing= 51.96 + (6% of 51.96)=55.08
Step 5: Process cost calculation
 Scouring cost= 100 ×( 50.98÷1000)= Rs. 5.00
 Bleaching cost= 80 ×( 50.98÷1000)= Rs. 4.08
 Mercerization cost= 90 ×( 49.96÷1000)= Rs. 4.40
 Dyeing cost= 75 ×( 51.96÷1000)= Rs. 3.9
 Finishing cost= 100 × (55.08÷1000)= 5.51

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 Total process cost= 5.00+4.08+4.40+3.9+5.51= Rs. 22.89

Step 6: Calculate woven fabric costing
 Final fabric cost= Grey fabric cost + processing
cost=37.74+22.89 = 60.63
 If the fabric consumption per T-shirt is 1.65 square metre,
 The fabric cost per garments= 1.65 × 60.63= Rs. 100.04

Knitted Fabric Costing

Example 3:

Find out the GSM of knitted fabric, the price of yarn, and fabric
cost for making a women’s T-shirt made from 100% mercerized
cotton using the following details that is shown in table 3.
1×1 Rs. 400 per
Knit structure Yarn price (60s Ne)
interlock kg
Yarn count 60s Ne Knitting charge Rs. 20 per kg
Courses per inch 80 Scouring charge Rs. 60 per kg
Wales per inch 60 Bleaching charge Rs. 40 per kg
Loop length 0.55 mm Mercerization Rs. 60 per kg
Dyeing charge
Fabric dimensional shrinkage 6% Rs. 80 per kg
(reactive)
Compacting @ 4% level Wrinkle free finish Rs. 40 per kg
Wrinkle free finish @ 5% level Compacting charge Rs. 10 per kg
Table 3: Order details of women’s T-shirt

Solution

Step 1: GSM calculation

 Loop density= courses per inch × wales per inch= 80× 60= 4800
 Yarn length in m= (loop density × 39.384 × 39.384 × loop length
in mm)÷ 1000= (4800 × 39.384 × 39.384 × 0.55)÷ 1000=
4,094.90 metres
 GSM= {0.59 × yarn length in m × (100+shrinkage)} ÷ (count ×
100)= {0.59 × 4,094.90 × (100+6)} ÷ (60 × 100)= 42.68 grams per
square metre
 GSM after compacting= 42.68 + ( 4% of 42.68)= 44.39 grams
 GSM after finish= 44.39 + ( 5% of 44.39)= 46.61 grams
Step 2: Calculate the yarn cost
 Yarn cost= yarn weight per square metre × yarn price = 42.68 ×
( 400÷1000)= Rs. 17.07 per square metre
Step 3: Calculate process cost

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 Knitting charge= 42.68 × (20÷1000)= Rs. 0.85

 Scouring charge= 42.68 × (60÷1000)= Rs. 2.56
 Bleaching charge= 42.68 × (40÷1000)= Rs. 1.71
 Mercerization= 42.68 × (60÷1000)= Rs. 2.56
 Dyeing charge= 42.68 × (80÷1000)= Rs. 3.41
 Wrinkle free finish= 46.61 × (40÷1000)= Rs. 1.86
 Compacting charge= 44.39 × (10÷1000)= Rs. 0.44
 Total process cost= 0.85+2.56+1.71+2.56+3.41+1.86+0.44=
Rs.13.39
Step 4: Calculate knitted fabric costing
 Total fabric cost= Yarn cost + processing cost= 17.07+ 13.39=
Rs. 30.46 per square meter

GARMENTS COSTING:

Example:

Suppose,
The buyer “Bangla Apparel” forwards a “woven long sleeve shirt” item order to you
with the following specification.

Fabric width- 60”

Follow the below measurement chart:

Actual Length Allowance Measurement with Allowance

Body Length from HSP 64cm 6cm 70cm

½ Chest 40cm 6cm 46cm

Sleeve Length 30cm 6cm 36cm

Armhole (Straight) 15cm 5cm 20cm

Collar Length 38cm 4cm 42cm

Collar Width 6cm 2cm 8cm

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Cuff Length 10cm 3cm 13cm

Cuff Width 2.5cm 0.5cm 3cm

Collar Band Length 28cm 3cm 31cm

Collar Band Width 2cm 2cm 4cm

Pocket Length 13cm 2cm 15cm

Pocket Width 9cm 1cm 10cm

Yoke Length 42cm 4cm 46cm

Yoke Height 11cm 3cm 14cm

Now, calculate the garments costing (on FOB) for the above order.

Solution:

Fabric width – 60”

(Here, the given fabric width is 60”, during sewing, we cannot use the edge of a
fabric. So, all time we must exclude 1” from the given fabric width. So, now the fabric
width is 60-1 = 59”)

Wastage – 10%

Let,

1. Fabric Cost per yds- $3.50

2. Printing Cost per dozen- $1.6
3. Embroidery Cost per dozen- $4.00
4. Accessories Cost per dozen- $1.80
5. Washing Cost per pcs- $1.00 so, washing cost per dozen is – ($1.00 × 12) =
$12.00

Now, we have to calculate the fabric consumption for this order.

1. Fabric consumption for the Body Parts (Body + Chest):

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Here, we will apply the following formula (per dozen),

(Note: 2.54 used to convert into inch from cm and 36 used to convert into yds
from inch).

2. Fabric consumption for the Sleeve:

Here, we will apply the following formula (per dozen),

3. Fabric consumption for the Collar:

Here, we will apply the following formula (per dozen),

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4. Fabric consumption for the Cuff:

Here, we will apply the following formula (per dozen),

5. Fabric consumption for the Collar Band:

Here, we will apply the following formula (per dozen),

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