Costing means to calculate the total investment for producing a product and how much profit will come from that’s investment.
It is most important to calculate the processing cost before starting production. During costing, cost analyzer should consider all the cost regarding that’s product production.
Costing system mainly describe how the cost of final product is fixed by the company or top management. A finished goods manufacturing company if it has knitting, dyeing and garments section then its costing for a product will be different from single manufacturing unit like spinning, knitting or dyeing. If it is a garment manufacturing factory, then according to the buyer or customer requirements of final garments, merchandiser give the consumption of the fabric with specification. Then it is calculated how much dyestuff and chemicals are required for processing. After that, the final cost is fixed including some profit. Then the unit price is offered to the buyer for their approval.
Costing of a product includes different factor. They are as follow:
- Yarn cost
- Knitting cost
- Dyes & Chemicals cost
- Cost of dyeing
- Cost of finishing
- Cost of cutting, sewing and accessories.
- Cost of printing (If needed)
- Labor cost (Direct or indirect)
- Factory cost
- Office and Administrative cost
- Sales and carrying cost
- Others cost
Costing of a factory is very secret matter. If costing is appropriate for making products then profit can come in any way.
So, manufacturers should consider the product manufacturing cost and its sale value.