Profit margins determine how much money you are making and represents the overall financial health of your business. Businesses need to pay attention to profit margins to remain fiscally healthy. Profits margins also measures how well a company is doing. In this article we are going to discuss how you can calculate the margins in apparel costing. So, let’s get started.
Calculating Profit Margin after Apparel Sales
This is a method used by many retailers to calculate their profit margins. The equation is:
Profit margin = Total sales – (Manufacturing costs + Operating expenses)
Manufacturing cost includes raw material costs, direct and indirect labour cost and overheads.
Operating expenses includes administrative overhead (operating general office and departments that are not directly involved with the product manufacturing)
Calculating Profit Margin before Determining FOB
This is another method of calculating the profit margin. Huge number of companies use this method to determine their profit margin. In this method, manufacturers add a certain percentage to its total cost as margin.
On average, the profit margin added at this point vary anywhere between 10% – 20%. This percentage is highly dependent on the final price negotiated by the buyer during final FOB.
In most cases, the buyers have a certain target FOB to achieve. But in order to grab the order the manufacturers or the exporter may have to absorb the pressure onto his profit margin. So it may go up or down based on their varying cost and labor cost.
Note: Most of the manufacturers hide their actual profit margin in the final costing sheet by adding the profits to costing, labor cost, and overhead costs. Thus achieving an overall higher profit margin without much negotiation.
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