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 Job Order Costing

Continuous or mass production where products which passes through
distinct process oroperations.
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 dividedby 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 separateentity 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 Order Costing
Works or productions are undertaken against the order of customers.
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 post-sewing. 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.

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.