7 ways Calculate The Raw Material Cost: Method And Process, Textile Industry
There is a different raw materials used for creating fabric such as threads, labels, tags, and trims which are required for a garment collected from different suppliers. To determine the raw material cost, you have to know the prices of each material separately. Material cost plays an important role in determining the cost of a garment. Clothing manufacturers must know the accurate pricing to sell their products.
Some critical methods used in determining the cost of a garment are as follows:
You can determine the garment cost by adding up the cost of each job. For this, you have to calculate the cost given to all the jobs and when job costing is done for a batch, it is called batch costing.
Contact costing is completed when a manufacturer contracts with other companies to manufacture its garments. The cost of fabric is not calculated by the manufacturers but contract firms maintain the cost and share it with the manufacturer.
The cost of manufacturing is completed when different fabrics are created and all the costs associated with fabrics are calculated.
Process costing is done when a product has passed through all the processes and the cost associated with them is calculated.
How to find the raw material cost of a garment?
Prepare the list of materials required
Make a list of items that are required for manufacturing the garments. Now, add the number of units of each material consumed for manufacturing the garment. A clothing manufacturer can decide the products they want to manufacture and see the needed details. Obtain the list of raw materials such as yarn, fabric, dye, and other materials.
Calculate the fabric price
There are different costs associated with the manufacturing of a garment and for this, find out the number of units for measurements, minimum ordered quantity of the fabric, type of fabric, Quantity of the fabric ordered, and fabric consumption.
Calculate the cost of trims
You should raw materials used in garments except the fabric are trims. Tags, labels, buttons, straps, threads, velcro, and threads are some examples of trims. The total number of different items used and the labor cost spent on each garment and the labor cost spent on garments affect the raw materials costs.
Create the material cost sheet
After determining the materials needed to make the garments and finding out the exact cost, the manufacturer makes a material cost sheet. You can prepare a costing sheet in excel or you can use specialized software made for it. In addition, one should also calculate the loss of raw material used during manufacturing such as knitting and dyeing loss where some material is expected to be lost.
Using the above-mentioned method, garments manufacturer can calculate the final price of their garments and they can also figure out the losses. After having good knowledge of the raw material required and prices, a manufacturer can look for ways to minimize the raw materials cost. However, reducing the cost means that the quality of the fabric will also reduce. They can reduce their logistics costs and for this, they can take the help of textile manufacturing experts to reduce their cost.
To understand the raw materials cost, focus on these elements such as the type of fabric, accessories like buttons, zippers, elastics, and Velcro’s attached to the garment, packaging, labeling, making charges, and shipping of garments and other raw materials. Also, go through the above costs to figure out the cost of the material. You can save your cost of raw material by reducing indirect expenses such as logistics costs and save money to reduce the cost of the material. It will help you to produce fabric at a lower cost and increase profits.