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Cost accounting tools can help sustain the RMG industry

Financial, cost and management accounting are principal branches of accounting. In the context of our business field we mostly do practice financial accounting that are basically being used in recording and reporting. Cost accounting is being used in small scale and management accounting is still out of curriculum. Though, aforesaid branches are most important tools for each successful business. Its importance is not less than machine tools. Even it works more than that if we can use it properly.

We would like to discuss more on readymade garments (RMG) industry, because it is now top priority topic to all of us. What it does? Answer is very simple, it makes readymade garments as customize designed products and exports it into a particular destination according to importer’s demand. Marketing is the first step of this business and its advance part is to quote pricing of a specific products. No doubt a marketer should have been in depth knowledge to make the standard pricing. In this situation, cost accounting can be used as a tool for quoting a product price. A specimen is given below for easy understanding:

cost calculation

Our focus point is to discuss on incidental risk costs, which have been included in the costing. Incidental risks in RMG may be occurred for the reason of late shipment, short shipment, empty works, cancellation of orders, sale on discount prices etc. The company paid the costs when it is incurred. Generally, the cost is paid from the account of incidental risks fund. When it is over the budget then the company sacrifices its profits.

In reality maximum company doesn’t follow proper costing method. Even they don’t record business transactions according to accounting standard. As a result, most of the companies face the problem. Whereas they would have been managed such costs, if it could consider at the beginning of business. A forty (40) million turnover company can create $ 0.40 Million each year against the account of incidental risks fund. It is equal to BD Tk. 3.50 core approximate annually. Perhaps It doesn’t do expense full, if the occurrences are incurred at minimum level.

Later on, the accumulated reserve builds a big fund. In the crisis situation, a company can manage its business by using the said fund nicely. Finally, we learnt from this pandemic that the business has to run systematically. Therefore, we can expect every seller will use costing tool in future for its sustainability.

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Textile Today April 2020 Issue
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Cover Story on 'Rightsizing of textile and apparel industry'
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