Cost Accounting Guidelines for Readymade garments and fashion appareal industry
![](file:///C:/Users/user/AppData/Local/Temp/msohtmlclip1/01/clip_image001.gif)
Cost Accounting
Guidelines
for
Readymade Garments
and Fashion Apparel Industry
Research Department
Institute of Cost of
Management
Accountants of Pakistan
COST
ACCOUNTING GUIDELINES (CAG) FOR
READY MADE GARMENTS AND FASHION APPAREL INDUSTRY
1. OBJECTIVE
1.1. This Guideline is aimed at facilitating the companies engaged
in production of readymade garments, clothing and fashion apparel, to maintain
their cost accounts as per the internationally accepted principles and concepts
of cost accounting.
1.2. The Guideline also aims at standardizing the different types of
cost formats, being used by the garments and fashion apparel industry in
Pakistan.
2. MAINTENANCE OF RECORDS
2.1 Every company to which these guidelines apply, shall keep
proper books of accounts, containing the particulars relating to utilization of
material, labour and other items of cost, in so far as these are applicable to
the ready made garments and fashion apparel produced by it.
2.2 The
books of account be kept on a regular basis so as to make it possible to
calculate the ‘cost of production’ and ‘cost of sale’ of the
garments and apparel at regular intervals, say quarterly, during the financial
year, as well as for the financial year as a whole, from the particulars
entered therein and every such books of account and the Performa specified
therein shall be completed before the end of the financial year of the company.
3. MATERIALS
3.1 Proper records be
maintained, batch wise, showing separately all receipts, issues and balances
both in quantities and cost of each item of raw materials such as yarn,
fabrics, accessories etc. used in the production of different types of garments
and apparel.
3.2 The records for
‘direct materials’ must contain such details as to enable the company to
determine the quantity, cost of receipts (including all direct charges upto the
works in respect of all major direct materials), issues and balances of each
item of direct materials, separately for ‘imported’ and ‘indigenous
supplies’ for each batch of garments / apparel produced.
3.3.
In case
of imported material, details of ‘procurement cost’, ‘insurance, freight
charges (CIF value), custom duty, port charges, inland freight and handling and
clearance charges paid be recorded separately. The basis on which the said
quantities and costs of issue and consumption have been calculated be indicated
in the cost records and followed consistently.
3.4.
The
records, related to consumption of various materials in the production of
garments be identified with specific batch of production or cost centers to
which the materials are issued. If the quantity and value of materials consumed
are determined on any basis other than actual, the method adopted be mentioned
in the cost records and followed consistently.
3.5.
Proper
records be maintained to show the receipts, issues and balances both in
quantities and costs of each type of garment (such as shirts, trousers, etc).
The issues and consumption be properly identified with the departments, cost
centers and products.
(2)
4. CONSUMABLE STORES AND SPARES
4.1. Proper records be
maintained to show the receipts, issues and balances, both in quantities and
cost of store items, tools and machinery spares. The cost must include all
direct charges upto works. The cost of consumption of consumable stores, small
tools, and machinery spares shall be charged to the relevant cost centers on
the basis of actual issues.
5. WASTAGES AND SPOILAGES
5.1. Proper records be
maintained showing the quantity and value of wastages, spoilages, rejections
and losses of raw materials (yarn, fabrics, accessories etc), consumable
stores, spares, etc, whether in transit, storage, production or at any other
stage. The method followed for adjusting these losses, and income derived from
disposal of rejected / waste materials, including spoilages if any, in
determining the cost of garments, be indicated in the cost records. Any
abnormal wastages or spoilages be indicated distinctly and separately along with
reasons thereof.
6. SALARIES AND WAGES
6.1. Proper records be
maintained to show the attendance and earnings of all temporary and permanents
employees and workers of different production units such as cutting, stitching,
finishing, packaging, marketing and other departments of the company. The
records must also indicate the following separately for each cost center or
department:
(a)
Piece
rate wages earned (wherever applicable);
(b)
Incentive
wages earned, either individually or collectively as production bonus or under
any other scheme based on output;
(c)
Overtime
Wages earned;
(d)
Earnings
of casual labour;
6.2. The records must be
maintained in such a manner as to enable the company to furnish necessary
particulars under this head. Where the employees work in such a manner that it
is not possible to identify them with any cost center, the labour charges be
apportioned to the cost centers on equitable basis and applied consistently.
6.3. Idle time must be
separately recorded under classified headings, indicating the reasons thereof.
The method followed for accounting of idle time payments in determining the
cost of garment must be disclosed in the
cost records.
6.4. Any wages and salaries
allocable to capital works e.g. additions to plant and machinery, buildings, or
other fixed assets be accounted for under the relevant capital heads.
6.5. If the wages and
salaries are charged to production on any basis other than actuals, the method
adopted be indicated in cost records. The reconciliation of such wages and
salaries with actuals be made at least quarterly, during the financial year,
explaining the reasons for variations. The treatment of such variations in
determining the cost of garment be indicated in cost records.
(3)
7. SERVICE
DEPARTMENT EXPENSES
7.1. Detailed records be
maintained to indicate expenses incurred in respect of each service department
or cost center. These expenses be applied to other services and production
departments on equitable basis and applied consistently.
8. UTILITIES
8.1.
Water –
Proper records showing the quantity and cost of
treated/ cooling water produced and consumed for the production (washing) of
garments must be maintained in such details as may enable the company to
furnish the necessary particulars.
8.2. Steam –
Where steam is produced by the company proper
records showing the quantity and cost of steam produced and consumed in the
production of garments must be maintained in such details as may enable the
company to furnish the necessary particulars.
8.2.
Power
-
Proper records must be maintained for the quantity
and cost of power purchased. Where power
is generated by the company itself, adequate records be maintained to show the
cost of power generated and consumed for the production of Garments. These
records be maintained in such details as may enable the company to furnish
necessary particulars.
9. REPAIRS AND MAINTENANCE
9.1. Proper records showing
the expenditure incurred on repairs and maintenance by the various departments
must be maintained. Where maintenance work is done by direct workers of any
production cost center, the wages and salaries of such workers be treated as
direct expenses of respective cost center. If the services are utilized for
other products also, the manner of charging a share to garment be equitable and
indicated in records and applied consistently.
9.2. Expenditure on major
repair works from which benefit is likely to accrue for more than one financial
year, must be shown separately in the cost records, indicating the method of
accounting in determining the cost with reference to the relevant period.
10. DEPRECIATION
10.1 Proper records be
maintained showing the cost and other particulars of fixed assets in respect of
which depreciation is to be provided for. These records must, inter alia,
indicate the cost of each item of asset including installation charges, if any,
the date of its acquisition, the date of installation, rate of depreciation and
the location of each asset.
(4)
10.2. The fixed assets whose
original cost of acquisition cannot be ascertained without any unreasonable
expenditure or delay, the valuation shown in the books on the first day of the
financial year beginning on or after the commencement of these rules be taken
as ‘cost’. Such evaluation shall exclude revaluation of any asset that had been
done prior to the aforesaid date.
10.3. The basis on which
depreciation is calculated and allocated/ apportioned to various cost centers
and departments and absorbed on the products must be clearly indicated in cost
records.
11. OTHER
OVERHEADS
11.1. Proper records be
maintained showing the various items of expenses, comprising the other
overheads. These expenses be analyzed, classified and grouped according to
functions, viz. works, administration and selling and distribution.
11.2. Overheads chargeable to
capital works must be indicated separately in the cost records. Basis of
apportionment or absorption of overheads to cost centers and products be also
indicated in the cost records.
11.3. The details of works,
administration and selling and distribution overheads be maintained in such a
manner as to enable the company to fill up necessary particulars.
12. RESEARCH AND
DEVELOPMENT EXPENSES
12.1. Proper records be maintained separately, showing the details of
expenses, if any, incurred by the company for the research and development work
viz. design and development of products, processes of manufacture, market
research etc. The method of charging these expenses to the cost of the products
be indicated in the cost records.
13. INTEREST
13.1. Proper records be
maintained separately, showing interest charges on term loan and cash credit /
overdraft (working capital). The amount of interest be allocated/ apportioned
to the products and other activities on a reasonable and equitable basis and to
be followed consistently. The basis of such apportionment shall be spelt out
clearly in the cost statements.
14. EXPENSES / INCENTIVES ON EXPORTS
14.1. Proper records showing
expenses incurred on ‘export sales’ of garments be maintained separately so
that the cost of export sales could be determined correctly. The expenses
incurred on exports, as well as any export incentives(s) earned be reflected in
the cost statement.
14.2.
Export
incentives be treated as ‘other income’ and reflected in the cost records.
Separate cost statement be prepared for products exported, giving details of
export expenses incurred /incentive earned.
(5)
14.3.
In case,
duty free imports are made, the cost statements should reflect this fact. The
company should maintain a separate ‘Price Stock ledger’ for duty free
import items and their consumption. If the duty free imports are made after the
actual production, the cost statements should reflect this fact. However, no
amount of notional custom duty etc. should be charged to this production.
15. PACKING
15.1. Proper records be maintained showing the quantity and cost of
various packing materials and other expenses incurred for packing the finished
products for marketing of garments.
15.2. Detailed records of the
expenses incurred on export packing, if any, also be kept separately and
exhibited in the relevant cost statements for exports.
16. WORK IN PROGRESS AND FINISHED GOODS STOCK
16.1. The method followed for
determining the cost of work in progress and finished goods be indicated in the
cost records so as to reveal the cost elements that have been taken into
account in such computation.
17. RECORDS OF
PHYSICAL VERIFICATIONS
17.1. Records of physical verifications be maintained in respect of all
items held in stock, such as raw materials (yarn, fabrics etc), accessories,
consumable stores, machinery spares, chemicals, finished garments etc. Reasons
for shortage/surpluses arising out of such verifications and the method
followed for adjusting the same in the cost of products be indicated in the
records.
18. STATISTICAL
RECORDS
18.1. Data regarding available
machine hours, direct labour hours in different production departments, and
actually utilized be maintained and shortfall suitably analyzed. Suitable
records for computation of idle time of machines must be maintained.
Production Flow
(Woven Garments)
![]() |
![](file:///C:/Users/user/AppData/Local/Temp/msohtmlclip1/01/clip_image003.gif)
![Text Box: Embroidery](file:///C:/Users/user/AppData/Local/Temp/msohtmlclip1/01/clip_image004.gif)
![](file:///C:/Users/user/AppData/Local/Temp/msohtmlclip1/01/clip_image005.gif)
![]() |
![]() |
Production Flow
(Knitted Garments)
![]() |
![]() |
![](file:///C:/Users/user/AppData/Local/Temp/msohtmlclip1/01/clip_image010.gif)
![]() |
![](file:///C:/Users/user/AppData/Local/Temp/msohtmlclip1/01/clip_image012.gif)
COST STATEMENTS
|
STATEMENTS SHOWING THE FOLLOWING:
·
Total Cost of Production of Garments
·
Total Cost of Sales of Garments
·
Cost of Material Consumed:
(a)
Yarn
(b)
Fabric
(c)
Accessories
(d)
Chemicals
মন্তব্যসমূহ
একটি মন্তব্য পোস্ট করুন