The main cost categories that build up to a garment's FOB price

This page explains the three category groups a garment's cost components fall into, for anyone who prices or checks a garment's cost

A garment's price is not just five separate numbers sitting side by side. Course 7 already named the five cost components, fabric, trims, making, overhead and profit, and showed how their shares of price are calculated. This lesson groups those five components into three families, by what actually drives each one, so a merchandiser can tell at a glance which numbers move together and which move on their own. Without this grouping, a person can name all five components and still not know which ones respond to a fabric-price change, which respond to a factory's booking level, and which one is simply a decision. This lesson mainly teaches the money flow: how a price's parts group together by what causes them to change.

What you need, and what this lesson does not cover

You need: the five cost components and the share-of-price formula from Course 7, lessons 1 and 2 (fabric, trims, making, overhead, profit).

By the end of this lesson you can:

• name the three category groups a garment's cost components fall into: material costs, conversion costs, and profit;
• explain what drives each category group, in plain words;
• state which numbers a merchandiser must confirm before trusting a material cost figure;
• explain why conversion costs move with time and rate, not with a purchase order;
• tell a driven cost component from one that is a deliberate decision.

Not covered here: how each component's own dollar value is read off a finished sheet (lesson 1.2), why the same garment can cost differently for two orders (lesson 1.3), and common costing mistakes (lesson 1.4).

Words you will meet in this lesson

A garment's five cost components fall into three families, grouped by what drives them, not by how large they are

Fabric and trims are material costs: money paid to an outside supplier for something the factory bought. Making and overhead are conversion costs: money spent turning those bought materials into a finished garment, through labour time and factory running cost. Profit is its own family: the amount the factory decided to keep, not a pass-through cost at all. Grouping the five components this way matters because each family responds to a different kind of change. A material cost moves when a supplier's price moves or when consumption per piece changes. A conversion cost moves when the garment's construction time changes or when the factory's booking level changes. Profit moves only when the factory chooses to change it.

The same three families appear on every order, but which family dominates changes with the product and the factory

Delta Garments' merchandiser groups Order A's five components into the three families before quoting Northline Apparel

Mona, the merchandiser at Delta Garments, is preparing to discuss Order A's costing with Sara at Northline Apparel. Before the call, she groups the five already-fixed components into their three families, so she can answer questions about which numbers might change and which will not.

Conversion costs are the largest family on Order A, just ahead of material costs

Group any garment's cost components into their three families in four steps

1. List the garment's five cost components from its costing sheet: fabric, trims, making, overhead, profit.
2. Sort fabric and trims into material costs, making and overhead into conversion costs, and leave profit on its own.
3. Sum each family's dollar value and divide by the total price to get the family's share.
4. Ask, for each family, what would make it change: a supplier price, a construction time, a booking level, or a decision.

A common mistake is treating overhead as a material cost because it is quoted as a single dollar figure like fabric

Overhead is quoted on a costing sheet the same way fabric is, as one dollar figure per piece, and this can lead a new merchandiser to treat the two the same way when looking for a saving. Fabric is a material cost: it can be reduced by negotiating a lower price per kilogram or a lower consumption per piece, both specific to this order. Overhead is a conversion cost: it is the factory's own running cost, absorbed across every order it makes, and cannot be renegotiated order by order the way a fabric price can. Confusing the two families sends a merchandiser to negotiate a number that the factory itself cannot move for one order alone.

• Fabric and trims are material costs: money paid to an outside supplier for something bought.
• Making and overhead are conversion costs: money spent turning bought materials into a finished garment.
• Profit is its own family: a deliberate decision, not a pass-through cost at all.
• A material cost moves when a supplier's price or a consumption figure changes.
• A conversion cost moves when construction time changes or a factory's booking level changes.
• The same three families apply whether the order is export or domestic, MTO or MTS.
• A cost component's size does not tell you how easily it can be moved for one order.

A new merchandiser at Delta Garments proposes negotiating overhead down the same way as fabric to protect Order A's margin

A new merchandiser joins Delta Garments and reviews Order A's costing sheet. Seeing fabric at USD 1.15 and overhead at USD 0.49, both quoted as single dollar figures, they suggest to Mona that the same negotiation approach used on fabric, asking the supplier for a lower price, should also be tried on overhead, to protect Order A's margin.

Here is the costing sheet they are looking at:

Can overhead be negotiated down for Order A the same way fabric can? Decide before opening the answer.

Cost build-up sheet: read Order A's own grouped rows, then work out your own order's family shares

Open the Cost build-up sheet workbook linked below. Its one sheet, "Cost build-up", lists Order A's five components, each with a note on how the amount is driven, its own dollar value, and a share-of-price column calculated by formula, never typed in. Fabric's row shows the calculation behind its 1.15 figure; the other four rows are typed values, since no further fixed driver figures exist for them at the academy. Group the five rows yourself into material costs, conversion costs and profit, then fill in the yellow "Your order" column with your own five numbers.

[Download the Cost build-up sheet](../../templates/T12-C01-cost-build-up-sheet.xlsx)

Download the Cost build-up sheet (Excel)

Lesson 1.2: Reading a finished costing sheet from fabric to final FOB

You now know the three category groups a garment's five cost components fall into, and why each group is driven differently. The next lesson reads a finished costing sheet line by line and shows exactly which numbers feed each component's own dollar value. Back to the course map