Grey to finished: how to work out the real cost of processed fabric
Grey at ₹40 and a mill charge of ₹12 does not make finished cloth cost ₹52. Shrinkage, seconds and freight change the figure — a worked example, meter by meter.
A trader buys grey cloth, sends it to a mill for dyeing or printing, and sells the finished cloth. The tempting sum is grey rate plus mill rate. It is always too low, because the meters that come back are fewer than the meters that went.
One lot, worked through
| Meters | Rate | Amount | |
|---|---|---|---|
| Grey purchased | 10,000 | 40.00 | 4,00,000 |
| Shrinkage in processing (6%) | (600) | ||
| Finished cloth received | 9,400 | ||
| Mill charge, on finished meters | 9,400 | 12.00 | 1,12,800 |
| Freight, both ways | 5,000 | ||
| Total cost | 5,17,800 | ||
| Cost per finished meter | 55.09 |
₹55.09, not ₹52. The grey for 10,000 meters was paid for; only 9,400 meters are left to carry that cost. On this lot the "simple" figure understates cost by ₹3.09 a meter — about ₹29,000 on the lot, which is most of the margin on a tight rate.
What goes into the cost
- The grey, at what was paid for it — including brokerage if you bore it.
- Processing charges, on whichever meters the mill bills — grey or finished. Read the bill.
- Freight to the mill and back.
- Any second process: a re-dye, a finish, embroidery or other job work.
What does NOT go in: the GST on the grey and on the mill bill, if you take input credit on it. Tax you get back is not a cost.
Shrinkage, shortage and seconds are three different things
- Shrinkage is normal — cloth shortens when it is processed. Its cost is carried by the meters that remain, as above.
- Shortage beyond the agreed percentage is the mill's to answer for. It is recovered through a debit note, and reduces your cost.
- Seconds — cloth that came back damaged or off-shade — are still stock, but worth less. Value them at what they will fetch, and do not let them pull down the cost of the good meters.
While the cloth is at the mill
It is still your stock. A lot sent on the 25th and not back by the month end must be counted in closing stock at its grey cost. Left out, the month shows a loss that the next month quietly gives back.
From cost to rate
If the lot must earn 8% on sale, the rate is cost divided by 0.92: ₹55.09 becomes ₹59.88. Quoting ₹56 because "grey 40, mill 12, and something on top" sells the lot at a profit of 91 paise a meter — while it feels like four rupees.
Keep the mill issue and the mill receipt tied to each other, lot by lot. That one link gives you shrinkage per mill, pending meters per challan and cost per finished meter without a single separate calculation.