Cost calculations of a T-shirt

This is an attempt to answer the very common question "how much would clothing prices go up, if everyone was paid fair?". The problem is that I'm not a garment manufacturing professional or in fact have any sort of business education, so the calculation might be off in some points! Sorry! But I'm looking forward to hearing everyone's comments.

I've chosen Bangladesh as the producing country and Bo Weevil's organic cotton as the ethical choice of material, but I'm open to alternative sources of ethical materials. Factory overhead and profit is calculated loosely based on David Birnbaum's book "Birnbaum's guide to Winning the Great Garment War". I estimate worker's wage is 15% of the price the factory asks for the shirt.


Exhibit A - Standard T-shirt
Let's assume conventional cotton jersey is 50% of the price of organic cotton, 140 euro per roll. Otherwise everything is the same about the material (for some reason jersey is ferried from Turkey to Bangladesh, even if it is available closer - just to make the calculations identical). Factory worker is paid 4600 taka per month, which in fact is not that bad wage in Bangladesh garment industry, but with it we arrive at the convenient wage 0,05 e per T-shirt.

20' container fits 147 rolls.
147 rolls = 20580 euros
+ Freight 5000 euros + insurance 0,5% (102,9 e) of cargo value = 5102,9 e
25682
+ Bangladesh tax 25% of CIF= 6420,725 e
(20580 e + 5102,9 e + 6420,725 e) = 32103,625 e

One roll makes 146 T-shirts, total 21462 T-shirts. 32103,625 e divided by 21462 ≈ material cost 1,50 euro per shirt.

1,5 e material + 0,05 e wage + factory overhead and profit 0,33 e = 1,88 e
+ Agent's comission 10% ≈ 2,068 e
+ Freight to Finland 1 e = 3,068 e
Duty 0% 
Price is doubled, when branch buys the shirt from parent company ≈ 6,14 e
Price is doubled again, when it arrives at the store = 12,28 e
+ VAT 24% ≈ consumer price 15,25 e



Exhibit B - Fair and organic t-shirt
Material is GOTS certified cotton jersey from Bo Weevil, 73 meter roll costs 280 euros, which will be imported from Turkey to Bangladesh. 0,5 m for T-shirt. I estimate 15 minutes for the whole manufacturing process from laying the material to packing the finished product. Good monthly wage in Bangladesh would be 160 dollars / 12000 taka / 145 euro, and 25 working days per month, 9 hour days (I've been told this wage level is unrealistic, but for the sake of argument please accept). So factory worker's wages amount to 0,16 euro per T-shirt.

20' container fits 147 rolls.
147 rolls = 41160 euros
+ Freight 5000 euros + insurance 0,5% (205 e) of cargo value = 5205,8 e
= 46356,8  e
+ Bangladesh tax 25% of CIF= 11591,45 e
(41160 e + 5205,8 e + 11591,45 e) = 57957,25 e

One roll makes 146 T-shirts, total 21462 T-shirts. 57957,25 e divided by 21462 ≈ material cost 2,7 euro per shirt.

2,7 e material + 0,16 e wage + factory overhead and profit 1,06 e = 3,92 e
+ Agent's comission 10% = 4,312 e
+ Freight to Finland 1 e = 5,4312 e
Duty 0%
Price is doubled, when branch buys the shirt from parent company (planning & design costs, advertising, marketing, etc. and profit)= 10,624 e
Price is doubled again, when it arrives at the store (rent, electricity, shop assistants wages etc & profit) ≈ 21,25 e
+ VAT 24% = consumer price 26,35 e


Exhibit C - Fair wage, standard material T-shirt
Now we raise only the wage of the factory workers but use standard material (which is again transported from Turkey to Bangladesh).

20' container fits 147 rolls.
147 rolls = 20580 euros
+ Freight 5000 euros + insurance 0,5% (102,9 e) of cargo value = 5102,9 e
= 25682 e
+ Bangladesh tax 25% of CIF= 6420,725 e
(20580 e + 5102,9 e + 6420,725 e) = 32103,625 e

One roll makes 146 T-shirts, total 21462 T-shirts. 32103,625 e divided by 21462 ≈ material cost 1,50 euro per shirt.

1,5 e material + 0,16 e wage + factory overhead and profit 1,06 e = 2,72 e
+ Agent's comission 10% ≈ 3 e
+ Freight to Finland 1 e (with insurance and handling) = 4 e
Duty 0% 
Price is doubled, when branch buys the shirt from parent company = 8 e
Price is double again, when it arrives at the store = 16 e
+ VAT 24% ≈ consumer price 19,85 e

So, if factory worker's wages would be raised from 4600 to 12000 taka per month (from exhibit A to exhibit C), the price goes up about 30 percent. If we include expensive organic material (Exhibit B), the price goes up another 40%. But it's still not unbearably expensive (unless you go clothes shopping every week). I've seen T-shirts which cost ~ 26 euros, without any guarantee on fair wages or organic fairly produced material.
Other thing I gathered from this calculation is "how on Earth is it possible to sell t-shirts for 4,95 e including VAT??". I can't arrive in that price except by cutting the cost of material near zero and expecting factories work for free. Or then the companies make loss, and that sounds as probable as water running uphill.


One more calculation A
 It is a bit strange to transport material from Europe to Bangladesh. If we found organic cotton jersey produced in a Bangladeshi factory that pays fair wages, so it would avoid freight and duty, what's the situation then? Let's assume the material still costs 280 euro per roll.

Starting point again is 147 rolls of material. 147 x 280 e = 41160 e. 41160 e divided by 21462 ≈ material cost 1,92 euro per shirt.

1,92 e material + 0,16 e wage + factory overhead and profit 1,06 e = 3,14 e
+ Agent's comission 10% = 3,454 e
+ Freight to Finland 1 e = 4,454 e
Duty 0%
Price is doubled, when branch buys the shirt from parent company = 8,908 e
Price is doubled again, when it arrives at the store ≈ 17,85 e
+ VAT 24% = consumer price 22,15 e


One more calculation B
Basic cotton jersey from Bangladesh 140 e per roll and low wages.

Starting point again is 147 rolls of material. 147 x 140 e = 20580 e. 41160 e divided by 21462 ≈ material cost 0,96 euro per shirt.

0,96 e material + 0,05 e wage + factory overhead and profit 0,33 e = 1,34 e
+ Agent's comission 10% = 1,474 e
+ Freight to Finland 1 e = 2,474 e
Duty 0%
Price is doubled, when branch buys the shirt from parent company = 4,95 e
Price is doubled again, when it arrives at the store ≈ 9,9 e
+ VAT 24% = consumer price 12,3 e