Process Costing in Apparel Manufacturing ProcessesWhat 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 manufacturingFeatures of Job Order CostingApparel manufacturing

Continuous or mass production where products which passes through distinct process or operations.We will 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 costing and their similarities with apparel manufacturingFeatures of Job Order CostingApparel manufacturing

Works or productions are undertaken against the order of customers.We will 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 CostingProcess Costing

Production is against specific order from the customersProduction is a continuous process based on future demand.

Variety of products are produced according to specificationsHomogenous products are produced in large scale.

Output and costs are not involved in any transactions from one job to another.Output and costs are transferred from one process to another process.

Cost control is more difficult because each job is different from other.Effective cost control is possible because production is standardized.

Cost ascertainment and determination of unit cost can be possible only when job is completedCosts are collected and accumulated at the end of the accounting period

There is no question of work in progress at the beginning or end of the period.Work in progress is always there because production is continuous.

Apparel Manufacturing ProcessesApparel 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.

Should apparel manufacturing follow job costing or process costing?We will discuss and list down the points here

Classification of materials used in apparel manufacturingDirect Raw materialThese 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. ConsumablesThese 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.UtilitiesThese 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.