A costing mistake rarely announces itself. A costing sheet with a wrong number still adds up, still produces a total, and still looks finished, so nobody is warned that anything is wrong. Course 7 already showed one such mistake, a typed percentage that goes stale the moment a cost changes. This lesson names four further mistakes, each one quiet in the same way, each one capable of erasing a factory's margin without a single warning sign on the page itself. Every one of these mistakes can happen to a careful merchandiser, not only a careless one, because a spreadsheet has no way to know that a number fed into it is wrong. This lesson mainly teaches the money flow: how a costing sheet can look complete and still be silently wrong underneath.
You need: the three cost families (lesson 1.1), the reading method (lesson 1.2), and the idea that cost drivers can genuinely differ between orders (lesson 1.3).
By the end of this lesson you can:
Not covered here: building a costing sheet skeleton from a blank page (lesson 1.5).
| Term | Meaning |
|---|---|
| Margin | Profit divided by the selling price, shown as a percentage of what a company sells for. |
| Markup | Profit divided by the cost, shown as a percentage of what a company paid. |
| Cost before profit | Everything a company pays to make or buy a product, before its own profit is added. |
| Selling price | The price a company charges for what it sells; profit plus cost before profit. |
| Overhead | A factory's running costs that are not fabric, trims or direct labour: rent, electricity, management salaries and similar costs, shared across all the pieces it makes. |
| Fabric cost | The cost of the fabric used in one garment, driven by fabric price per kilogram and consumption per piece. |
A costing sheet with every formula correctly wired can still be wrong, because a formula only calculates correctly from the numbers it is given; it cannot tell a wrong input from a right one. A fabric price quoted in the wrong unit, an overhead figure carried over from a different order size, or profit set by the wrong percentage all produce a total that looks exactly as finished as a correct one. The sheet does not know it is wrong, and neither does anyone reading only the total, since every cell still shows a number and every row still adds up cleanly. Catching these mistakes means checking specific things on purpose, one at a time, not waiting for the sheet to signal a problem it has no way of seeing on its own.
Its own five components, listed separately elsewhere in this course, are fabric 1.15, trims 0.20, making 1.10, overhead 0.49 and profit 0.26.
What you meet in real life| What can differ | The shapes you will meet | Why it matters to you |
|---|---|---|
| Unit mismatch in a fabric quotation | A mill quotes fabric per metre; a merchandiser's costing sheet expects a price per kilogram, and the two are entered as if they were the same kind of number. | Multiplying a per-metre price by a per-kilogram consumption produces a fabric cost with no real meaning, though the sheet still totals cleanly. |
| A stale overhead figure carried between order sizes | An overhead-per-piece figure calculated for a 15,000-piece order, like Order A, is reused unchanged on a much smaller domestic order without recalculating the allocation. | The smaller order absorbs too little overhead, understating its true cost and quietly reducing the margin actually earned on it. |
| Margin and markup confused when setting profit | A merchandiser is told to price in a "20% profit" and applies it as a markup on cost, when the buyer or owner meant a 20% margin on the selling price. | Margin and markup on the same percentage produce two different selling prices; using the wrong one either underprices or overprices the order. |
| Wastage left out of a fabric consumption figure | A consumption figure is taken straight from a pattern's net fabric area, without adding the marker wastage a real cutting room always loses. | Fabric cost is quietly understated by exactly the wastage percentage left out, an error that only surfaces once real fabric is bought. |
Cedar & Co., a domestic brand selling from its own 12 shops on a make-to-stock basis, asks Delta Garments to price a T-shirt similar to Order A's own construction. Cedar & Co.'s owner Omar tells Mona he wants "20% profit built in." Mona must decide whether Omar means a 20% margin on the final selling price, or a 20% markup on cost, before she can calculate a single number.
| Approach | Cost before profit | Profit calculation | Selling price |
|---|---|---|---|
| 20% markup on cost | USD 2.94 | 2.94 x 0.20 = USD 0.588 | 2.94 + 0.588 = USD 3.53 |
| 20% margin on selling price | USD 2.94 | Selling price x 0.20 = profit, so cost = selling price x 0.80 | 2.94 / 0.80 = USD 3.68 |
A merchandiser told to build in "20% profit" without being told which method is meant can apply the wrong one confidently, since both markup and margin are ordinary, correct calculations on their own; neither one is a mistake in itself. The mistake is using either one without confirming which the other party actually meant. On Cedar & Co.'s order, that single unconfirmed word costs USD 0.15 per piece, either underpricing the order for Delta Garments or overpricing it for Cedar & Co., depending on which reading turns out to be wrong.
A costing sheet can be wrong and still look completely finished, because the sheet only calculates from the numbers typed into it; it cannot tell a wrong number from a right one. Four mistakes cause this quietly: mixing up a fabric price quoted per metre with a consumption figure measured per kilogram, reusing an overhead figure that was really calculated for a different order size, applying "20% profit" as a markup when a margin was meant, or the other way round, and forgetting to add marker wastage to a fabric consumption figure. None of these mistakes show up as an error message. They show up later, as a margin that was smaller than expected, once the goods are already made and sold.
Mona is ready to send Cedar & Co. a price for the domestic T-shirt order. Omar's instruction was "build in 20% profit." Mona is about to apply this as a 20% markup on cost, USD 3.53 per piece, when a colleague asks whether Omar actually meant a 20% margin on the selling price instead.
Here is the instruction Mona is working from:
Does it matter which reading Mona uses, since both are correct methods of calculating profit? Decide before opening the answer.
Yes, it matters, even though both methods are individually correct. Two facts decide this together.
First, that margin and markup are both legitimate calculations. Nothing is wrong with either method on its own; a 20% markup and a 20% margin are both standard, correct ways to add profit to a cost.
Second, that the same 20% figure produces two different selling prices. A 20% markup on Cedar & Co.'s USD 2.94 cost gives USD 3.53; a 20% margin gives USD 3.68, a gap of USD 0.15 per piece. If Omar meant margin and Mona quotes the markup price, Delta Garments underprices the order by that amount on every piece.
Mona's colleague is right to stop and ask. The fix costs one clarifying question; guessing wrong costs USD 0.15 per piece for the life of the order.
Framed with a number, if Delta Garments had quoted the markup price of USD 3.53 when Omar actually meant a 20% margin, and Cedar & Co. later insisted on the margin-based price it originally meant, Delta Garments would either have to renegotiate mid-order or absorb the USD 0.15 per piece gap itself, shrinking its own intended profit.
A single clarifying question before quoting would have cost Delta Garments nothing and avoided the entire USD 300 shortfall.
Open the Cost build-up sheet workbook linked below. Before treating any finished sheet as final, check its fabric row for matching units, its overhead row for the order's own quantity, its profit line for a confirmed margin-or-markup reading, and its fabric consumption for wastage already included. Only after these four checks pass should the total be trusted and quoted.
[Download the Cost build-up sheet](../../templates/T12-C01-cost-build-up-sheet.xlsx)
1. Why can a fabric price quoted per metre and a consumption figure measured per kilogram not simply be multiplied together?
2. Why is it a mistake to reuse Order A's overhead-per-piece figure unchanged on a much smaller domestic order?
3. A cost before profit of USD 5.00 gets 25% profit added, without saying whether that means margin or markup. What is the difference between the two prices?
| EN | AR | FR | TR | Meaning |
|---|---|---|---|---|
| Margin | الهامش | Marge | Marj | Profit divided by the selling price, shown as a percentage of what a company sells for. |
| Markup | الزيادة على التكلفة | Majoration (marge sur coût) | Kâr yüzdesi (markup) | Profit divided by the cost, shown as a percentage of what a company paid. |
| Cost before profit | التكلفة قبل الربح | Coût avant profit | Kârdan önceki maliyet | Everything a company pays to make or buy a product, before its own profit is added. |
| Selling price | سعر البيع | Prix de vente | Satış fiyatı | The price a company charges for what it sells; profit plus cost before profit. |
| Overhead | التكاليف العامة | Frais généraux | Genel giderler | A factory's running costs that are not fabric, trims or direct labour: rent, electricity, management salaries and similar costs, shared across all the pieces it makes. |
| Fabric cost | تكلفة القماش | Coût du tissu | Kumaş maliyeti | The cost of the fabric used in one garment, driven by fabric price per kilogram and consumption per piece. |
You now know four mistakes that quietly erase a factory's margin without anyone noticing at the time. The next lesson puts everything from this course together to build a costing sheet skeleton for a brand-new style, from a blank page to a checked total. Back to the course map