Kurti Export Enquiry: Costing, Price Negotiation and Safety Audit
A small unit in Kolkata receives an enquiry for 500 kurtis. The estimator uses: fabric 2.4 m at ₹150/m; lining 0.4 m at ₹80/m; trims ₹30; direct labour ₹110; overhead 15% of prime cost; rejection 4%; profit 20% on cost; GST 5%. The buyer offers ₹800 per piece inclusive of GST, with payment in 45 days. The unit has 12 machines and is currently at 60% capacity. On the floor, one overlock has no eye guard, fabric rolls are stacked 1.8 m high beside the only exit, lighting at the needle point measures 180 lux, and there is no written needle-control policy. The buyer’s quality team will audit the unit before placing the order. The owner wants to know whether the price is workable and what must be fixed before the audit.
1. Compute the cost per piece and the minimum ex-GST price at 20% profit with 4% rejection, then decide whether the ₹800 inclusive offer is workable.
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Cost build-up per piece:
| Item | Amount |
|---|---|
| Fabric 2.4 m × ₹150 | ₹360.00 |
| Lining 0.4 m × ₹80 | ₹32.00 |
| Trims | ₹30.00 |
| Direct labour | ₹110.00 |
| Prime cost | ₹532.00 |
| Overhead 15% of prime | ₹79.80 |
| Cost before rejection | ₹611.80 |
| Rejection 4%: 611.80 ÷ 0.96 | ₹637.29 |
| Profit 20% on cost | ₹127.46 |
| Ex-GST price | ₹764.75 |
| GST 5% | ₹38.24 |
| Inclusive price | ₹802.99 |
The buyer’s ₹800 inclusive price gives a net revenue of 800 ÷ 1.05 = ₹761.90. Profit is ₹761.90 − ₹637.29 = ₹124.61, or about 19.55% on cost. That is marginally below the 20% target but very close. If the unit has idle capacity and the 4% rejection is achievable, the order is workable; otherwise counter at about ₹805 inclusive or ask for a small price adjustment. GST is a pass-through and should not be counted as profit.
2. The buyer offers ₹760 per piece inclusive of GST for 500 pieces with payment in 45 days. Evaluate whether to accept, showing the profit or loss and two non-cost factors.
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At ₹760 inclusive, net revenue is 760 ÷ 1.05 = ₹723.81. Against the 4% rejection cost of ₹637.29, profit is ₹86.52 per piece, or about 13.6% on cost - well below the 20% target.
Sensitivity:
- If rejection rises from 4% to 8%, cost becomes 611.80 ÷ 0.92 = ₹665.00, leaving profit of ₹58.81, about 8.8%.
- If fabric price rises 10% to ₹165/m, fabric cost becomes ₹396, prime cost ₹568, overhead ₹85.20, and cost before rejection ₹653.20; with 4% rejection, cost is ₹680.42, leaving profit of ₹43.39, about 6.4%.
- Payment in 45 days also ties up working capital. At 12% interest, 500 pieces × ₹637.29 × 45/365 is about ₹4,714, or ₹9.43 per piece, reducing the margin further.
Two non-cost factors: the buyer’s audit may fail on safety and needle control, and a low price may set a precedent for future orders. Recommendation: do not accept ₹760 unless the unit is truly idle, the buyer agrees to a shorter payment term or a higher price near ₹800, and rejection is controlled.
3. Identify three occupational safety issues in the unit and propose a low-cost control for each.
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Three priority issues and controls:
- Overlock without an eye guard. The exposed needle and moving parts can injure the operator’s eyes. Control: fit a machine guard or polycarbonate eye shield; this is a low-cost item and should be done before the audit.
- Fabric rolls stacked 1.8 m high beside the only exit. This blocks escape and creates a falling-roll hazard. Control: move the rolls to a rack away from the exit, keep at least 1 m clear aisle, and mark the exit with a sign. No major capital is needed.
- Lighting of 180 lux at the needle point. Poor lighting causes eye strain and missed defects. Control: add LED task lights at each machine to bring illumination at the needle to at least 300–500 lux, and check that cables are routed safely.
Also introduce a written needle-control policy and a first-aid box, because the buyer’s audit will look for both. These controls are inexpensive compared with the risk of injury, rejected audit or lost order.