TS017- Cost Management in Textile Industry




Cost Management in Textile Industry
Sanyog Chandpurkar
Department of Textile Technology
Shri Guru Gobind Singhji Institute of Engineering and Technology, Nanded, India
Introduction :
Cost management is a system of determining the costs of products or services. It has primarily developed to meet the needs of management.  It provides detailed cost information to various levels of management for efficient performance of their functions.
Cost management information about profit , loss, cost etc., of the collective activities of the business as a whole. It does not give the data regarding costs by departments, products, processes and sales territories etc. It does not fully analyse the losses due to idle time, idle plant capacity, inefficient labour, sub-standard materials, etc. Cost accounting is not restricted to past. It is concerned with the ascertainment of past, present and expected future costs of products manufactured or services supplied. Cost accounting provides detailed cost information to various levels of management for efficient performance of their functions.
Cost unit  breaks up the cost into smaller sub-divisions and helps in ascertaining the cost of saleable products or services. A cost unit is defined as a " unit of product , service or time in relation to which cost may be ascertained or expressed."   For example in a spinning mill the cost per kg of yarn may be ascertained. Kg of yarn is cost unit.  In short  Cost unit is unit of measurement of cost.

Costing methods :
There are two type of costing method in Textile industry
Job costing - costing is taken to be a job or work order for which costs are separately collected and computed.
Process costing - mass production industries manufacturing standardized products in continuous processes of manufacturing. Cost are accumulated for each process or department.

Classification of cost :
Standard cost :
Standard cost is the cost of producing the requested product at the requested quantity detailed to the consumed component level of both materials and cost elements such as labor, energy etc.

This can be achieved by calculation of the cost per machine hour, broken down to the smallest measurable element:

Proactive costing :Knowing the cost and margin of each order line before acceptance allows decision makers to confirm or reject an order price by actually knowing the accurate margin of that order before production, this leads to rejecting lines far under the variable cost, avoiding rejection of prices above variable cost but under “full average” cost and prioritizing orders by maximizing contribution per scarce resource hour.


Importance of cost management :

-Calculating overall profit and loss margin of industry.

-Control costs with special techniques like standard costing and budgetary control.

-cost data and other related information for managerial decision making such as introduction of a new product, replacement of machinery with an automatic plant etc.

-Maintaining the selling prices, particularly during depression period when prices may have to be fixed below cost.

-It helps in inventory control

-It helps in the introduction of a cost reduction programme and finding out new and improved ways to reduce costs

-Cost audit system which is a part of cost accountancy helps in preventing manipulation and frauds and thus reliable cost can be furnished to management

Elements of Spinning Costs:
Raw cotton, wages and salaries, power, stores, overheads, interest and depreciation are the elements of spinning costs, which are analysed one by one.
Raw material cost :In spinning mills, cotton is the chief raw material accounting for more than 85% of the fibre consumption and more than 76% of the total fibre consumption in the textile sector ? Cotton accounts for about 50 to 70 per cent of the yarn costs. Cotton costs are found to differ considerably within a year to the extent of about 30%, the C.V. being on the average 7%. Besides, there is a large inter- mill variation of about 30% in raw material cost.' Within the same count, the raw material is found to vary between mills + /- 20% with a C.V.of 5% In view of the very large impact which cotton cost has on profitability, just a 5% adverse change is enough to almost wipe out the average profit margin for a mill. Since the cotton cost and yarn selling prices are largely governed by factors which are to a great extent beyond the control of the mills, it becomes all the more important that the best quality yarn is produced with maximum realization from cotton. In order to maintain cotton costs more or less at average levels, the ds should follow the policy of buying the required quality cotton in economic quantities at most favorable prices under best possible terms. Further, the procured cotton should be protected against losses by proper physical control.

Wages and labour cost :The ever increasing portion of sales rupees which is paid out for salaries and wages and for hge benefits points out the importance of effective control over labour and labour related costs. It is the largest component of conversion cost and the second largest element of spinning cost. It accounts for about 14% of the sales revenue of cotton yarn. But, there are wide inter mill variations in the incidence of labour cost, the variation being 6 per cent to 25 per cent of sales revenue. 8~ major cause of the inter-mill variation in labour cost is due to differences in labour productivity and wage rates. As far as labour productivity is concerned, there is a wide gap between Indian mills and those 'in developed countries-- our labour productivity is only 114 to 116 of that of developed countries.~ It should be ensured that labour productivity should be maintained at maximum possible levels. The improvement in labour productivity should be sought through co-operation of labour unions, but at the same time the hits of increased labour productivity be shared with work force.

Power Costs :Energy cost is one of the major components of conversion cost in a spinning mill and ranks next only to wages. The SKRA norm of power cost for the average spinning mills is 10.50% of the sales value.

Cost of Stores :The stores and spares items consist of packing materials, spindle oils, grease and lubricants, bobbins, skewers, aprons, spindle tapes and travellers, rings card clothing, combing needles, rollar cots in ring fames and ring spinning etc. According to SITRA, stores expenses are on the average about 3.5% of sales.

Overheads:Overheads include the expenditure incurred towards general administration, selling and distribution, insurance, travelling expenses, telephone, advertisement, rates and taxes, time office and welfare expense, printing and stationery.



How to control cost at spinning mill :
-Reduction of manufacturing cost
-Higher production per spindle (gms)
-Higher productivity per employee (kg/employee or HOK)
-Higher yields (yr)
-Less energy to produce (unit per kg) 
-Control on consumables 
-Control packing cost

Waste control
The waste occurring in the spinning mill can be classified normally as soft waste and hard waste. Soft waste is reusable in the spinning process, whereas hard waste is not reusable. To have a good control on the process waste it is important to assess the waste in blow room, carding, comber and ring frame at regular intervals. Controlling process wastes such as blowroom and card droppings, flat strips, comber noil, sweep waste and yarn waste, equal emphasis should also be laid on the control of soft wastes such as lap bits, sliver bits, roving ends and pneumafil and roller waste. This is because, apart from loss in production, reprocessing of soft wastes involves extra handling and deteriorates yarn quality. It should be noted here that the control on waste has to be concomitant with achieving the desired level of cleaning.

Energy conservation in plant
The need for energy conservation has assumed paramount importance in the textile industry with the rising energy cost on the one hand and the severe energy shortage on the other. Textile mills, particularly in the South, have suffered in the last few years due to severe power shortage resulting in greater resort made to captive power through gensets, which has increased the power cost drastically. This has also contributed to generating greater awareness on finding ways to save energy costs and making the whole manufacturing process more efficient. The energy cost, next to the material cost, is around 15-20 per cent of the total production cost.Apart from the power cost, manpower shortage is yet another major problem forcing the mills to deploy more automated machines. Hence, with textile machinery manufacturers integrating automation in the machines they produce, the power requirements of mills keep rising.
Conclusion :

Cost management in textile industries help in the financial performance. In textile industry, one can follow process and quality control practices for making high quality product at minimum cost. There are some elements like raw material, labor cost and power cost which needs to be controlled for the minimizing cost. So, cost management and cost accounting are very important factor for measuring profit and loss margin in textile mill.

References : 
Book reference 
-SITRA cost control and costing in spinning mills, by T.V.RATNAM, INRA DORAISWAMY, S.SESHADRI,R. RAJAMANICKAM.
Online reference -  

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55 Comments

  1. Knowledgeable article good....

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  2. Good article that gives knowledge about cost management in Textile mills.

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  3. you have provide good ways to reuse waste generated in textile industry

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  4. Good article.The information which is provided in this article is essential for cost management in any sectors and by using Images in an article it's very simple to understand.In this article the knowledge you shared is enough for understand cost management.

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  5. Very knowledgeable article with good references

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  6. That's very helpful and informative article.

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  7. Good work Sanyog. ... keep it continue.

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  8. Well informative project..!!
    Keep up the good work!!

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  9. Keep it up nice information....

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  10. Very good brother ...
    Keep it up

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  11. Useful & Informative article. Keep it up.

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  12. This comment has been removed by the author.

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  13. Well informative projects..'
    Keep up the good work

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  14. The article is Very good And useful with reference.And it's helpful for me πŸ™

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  15. Go for it...broda, it's starting many more articles are there to come .. keep pushing your self we are their to support and appreciate you

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  16. Excellent article and useful for cost management related queries.

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  17. Great information! Its good to see whole useful information about cost management in one article... Good job!!

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  18. Excellent, it's very important information

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  19. Good article πŸ‘πŸ‘πŸ‘

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  20. Important information keep it up

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  21. Good bro it is nice information

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  22. Really useful and properly discribed content

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  23. Keep it up.... really nice information

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  24. It is very useful
    As it is in very simple and understanding language

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  25. Awesome Article...its really useful

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  26. ����������

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  27. Very useful πŸ”₯ Keep it going πŸ”₯πŸ”₯

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  28. Practical and nice info

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  29. Excellent work done.... ..
    Very useful...

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  30. Very good article very useful keep it up

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