Cost
Management in Textile Industry
Sanyog Chandpurkar
Department of Textile
Technology
Shri Guru Gobind Singhji
Institute of Engineering and Technology, Nanded, India
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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