Process Costing in Apparel Manufacturing

Processes
What is Process Costing?
Process Costing is a method of costing. It is employed where each similar
units of production involved in different series of process from conversion of
raw materials into finished output. Thus, unit cost is determined on the basis
of accumulated costs of each operation or at each stage of manufacturing a
product. Charles T. Horngren defines process costing as "a method of costing
deals with the mass production of the like units that usually pass the
continuous fashion through a number of operations called process costing."
The application of process costing is where industries adopting costing
procedure for continuous or mass production. Textiles, chemical works,
cement industries, food processing industries etc. are the few examples of
industries where process costing is applied.
Features of Process costing and their similarities with apparel
manufacturing
Features of Job Order Costing

Apparel
manufacturing
Continuous or mass production where products which We
will
passes through distinct process or operations.
discuss
and
list down the
points here
Each process is deemed as a separate operations or
production centres.
Products produced are completely homogenous and
standardized.
Output and cost of one process are transferred to the
next process till the finished product completed.
Cost of raw materials, labour and overheads are collected
for each process.
The cost of a finished unit is determined by accumulated
of all costs incurred in all the process divided by the
number of units produced.
The cost of normal and abnormal losses usually incurred

at different stages of production is added to finished

goods.
The interconnected processes make the final output of
by-product or joint products possible.

What is Job costing?

The term Job Costing may be defines as "in job costing, costs are collected
and accumulated according to jobs, contracts, products or work orders. Each
job is treated as a separate entity for the purpose of costing. The material
and labour costs are compiled through the respective abstracts and
overheads are charged on predetermined basis to arrive at the total cost."
Features of Job
manufacturing

costing

and

their

similarities

Features of Job Order Costing

with

apparel

Apparel
manufacturing
Works or productions are undertaken against the order of We
will
customers.
discuss
and
list down the
points here
Production is not as a continuous process because each
job is accepted by work order basis not for stock or future
sales.
Each job is treated as a separate entity for the purpose of
costing.
There is no uniformity in the flow of production because
of different production process.
Costs are collected and accumulated after the completion
of each job or products in order to find out profit or loss
on each job.
The jobs differ from each other requiring separate work in
progress maintained for each job.

Difference between Job Costing and Process Costing

Job Costing

Process Costing

Production is against specific order

from the customers
Variety of products are produced
according to specifications
Output and costs are not involved in
any transactions from one job to
another.
Cost control is more difficult
because each job is different from
other.
Cost
ascertainment
and
determination of unit cost can be
possible only when job is completed
There is no question of work in
progress at the beginning or end of
the period.

Production is a continuous process

based on future demand.
Homogenous products are produced
in large scale.
Output and costs are transferred
from one process to another process.
Effective cost control is possible
because production is standardized.
Costs are collected and accumulated
at the end of the accounting period
Work in progress is always there
because production is continuous.

Apparel Manufacturing Processes

Apparel manufacturing consists of primarily three sequential processes;
cutting-sewing-finishing, often segregated as three different departments.
Technically these three processes can be called pre-sewing, sewing and postsewing. Sewing remains the most important process because maximum

capital investment of machinery as well as maximum concentration of

labour. Pre-sewing consists of warehousing of raw materials, inspection of
raw materials, spreading and cutting of fabric, ticketing and bundling of
fabric, fusing, and embroidery. Post sewing processes consists of thread
trimming, inspection, washing (both as cleaning as well as value addition),
ironing/pressing/finishing and packing. As the material is associated with
each of these processes, they are sequential in nature. While the complete
raw material is associated with majority of the processes, few of the
processes may deal with part raw material. For example fusing and
embroidery may happen in part of the raw material only, inspection, washing
involves complete raw material.

Should apparel manufacturing follow job costing or process costing?

We will discuss and list down the points here

Classification of materials used in apparel manufacturing

Direct Raw material
These are the integral part of the product and customer (end consumer) is
willing to pay for. Example of such materials are fabrics and accessories like
thread, button, zippers.
Indirect Raw material (assistive raw material)

These are temporary part of the product that helps or accentuates the
intangible value of the product. These are generally removed while the
product is in use. Examples of such materials are packaging materials, tags,
boxes.
Consumables
These are used up (consumed) during different processes of manufacturing
(conversion) of the product. These are not part of the ultimate product that
customer (end consumer) is willing to pay for. Examples of such materials
are sewing needles, machine lubricants, steam, washing chemicals.
Utilities
These are used up (consumed) for running the machinery used for
manufacturing (conversion) of the product. Again these are not part of the
ultimate product that customer (end consumer) is willing to pay for.
Examples of such materials are electricity, compressed air, fuel (diesel),
water.