Project Profile on the Establishment of modern

garment manufacturing factory

To
Bahirdar zurya Woreda industry and investment office
Owner: - Shikur kindu hasen

March 2023
BAHIR DAR
Contents
Executive Summary …………………………………………………………….1
1.Product Description and Application……………………………………………1
2.Market Study, Plant Capacity and Production Program…………………………1
2.1Market Study……………………………………………………………………1
2.1.1 Present Demand and Supply…………………………………………………1
2.1.2 Projected Demand……………………………………………………………2
2.2 Pricing and Distribution……………………………………………………….3
2.3.Plant Capacity………………………………………………………………….3
2.4 Production Program……………………………………………………………3
3.1Raw Materials and Utilities…………………………………………………….3
3.2 Availability and Source of Raw Materials…………………………………….3
3.2 Annual Requirement and Cost of Raw Materials and Utilities……………….5
5.Location and Site………………………………………………………………..5
6.Technology and Engineering……………………………………………………5
6.1Production Process…………………………………………………………….5
6.2 Machinery and Equipment…………………………………………………..13
6.2.1 EACH MACHINE WORK STATION (WORKING AREA)…………….13
6.2.2 SPACE REQUIREMENT FOR NON PRODUCTION AREA…………..14
7.Civil Engineering Cost………………………………………………………..15
8.Human Resource and Training Requirement…………………………………15
8.1Human Resource…………………………………………………………….15
8.2 Training Requirement………………………………………………………16
9.Financial Analysis……………………………………………………………17
9.1 Underlying Assumption…………………………………………………….17
10.Investment……………………………………………………………………17
10.1 Production Costs …………………………………………………………..18
a. Financial Evaluation…………………………………………………….19
10.2 Annual production at full capacity…………………………………………20
10.3 Production costs………………………………………………………..21
10.4 source of fund……………………………………………….…………22
10.5 loan repayment schedule……………………………………………….22
10.6 Depreciation schedule………………………………………………….22
10.7 Balance sheet…………………………………………………………..22
10.8 Income/loss statement…………………………………………………23
11.Economic and Social Benefit and Justification………………………….23
Background of the project

Name of project: - Shikur and Alkadr

Capital: - 130,000,000.00 ETB

Man power: - 140 persons

Linkage :- backward linkage with finished fabric manufacturing factories and

Forward linkage with sometimes printing factories about 10% of products

Export: - 69% of the product export to African countries.

TECHNOLOGY: - nano technology this technology allows the textile and garment industry to

manufacture clothing with more scientific look out such as fire repellent, self-cleaning and produce

products using less energy making them sustainable.

Raw materials: - 68% of raw materials have to be from local market or in farm
 1. Executive Summary

Project name MAIF garment

Nationality Ethiopian
Project location Bahir dar zurya woreda
Premises required 12,000 m2
Total initial investment cost 120 million(15% equity and 85% loan)
Employement opportunity 139 workers
Export 69%
Local raw material usage 68%

The project envisages production of 680,000 and 220,000 men’s dress shirt per annum for export and
local market respectively. The total investment outlay requirement of the project including the working
capital is estimated at about Birr 120 million; of which nearly Birr 80 million is the cost of the working
capital and Birr 40 million is for machinery and equipments. Based on the cash flow statement, the
calculated internal rate of return (IRR) and simple rate of return (SRR) of the project are 44.9 % and 41,
respectively. The net present value (NPV) at 18 %. The plant is expected to create employment
opportunities for about 139 persons.
2. Product Description and Application

The garment work consists of the manufacturing of clothing by cutting and sewing fabrics. Garment is
one of the major activities that consume huge labor. The major input for garment production is different
types of textile fabrics. Important garment products include shirts, shorts, T-shirts, under wears, fur
apparel, pants, trousers, sport wears, work clothes and jackets.
This project envisages to make men’s dress shirt. Men' shirt, among various kinds of clothing, has wide
adaptability and is consumed in huge quantity throughout the world. Transporting the product is easy
too; therefore, if the factory can produce quality shirt at a cost which can compete internationally,
geographical limitation of the factory location is practically nil for both local consumption and export.
3. Market Study, Plant Capacity and Production Program
3.1. Market Study
3.1.1. Present Demand and Supply
Textile and garment industry has enormous potential and opportunities for progress. The demand for
garment in the world market is increasing. Garment products of Ethiopia have high market demand in
many parts of the world, particularly in the United States of America, Western Europe and Japan. Cotton
garments have wide adaptability and are consumed in huge quantity throughout the world. Therefore,
there will be sufficient demand for the product in the international markets if the factory can produce at
a cost which can compete internationally. With this market demand the company is going to export 75%
of its product for the international market.
However, although there is a high potential for the production of raw materials, such as textile and
leather, the garment industry has not yet developed in the country. The demand for garment products, in
various parts of the world is steadily growing. There is high potential for cotton production; which
supplies basic raw materials for the textile factories, which in turn, are major raw material suppliers for
the garment industry. The textile fabric, which is the major potential input for garment production, is
produced in various textile factories in the country.
Garment industry is labor intensive, requires relatively small capital investment and has high market
demand in the world market; all of these conditions are in line with the country’s requirement.
Moreover, there is an opportunity to get skilled manpower for making the product as there is a Textile
and Garment Industry Support Institute at the Bahir Dar University for training professional skilled
manpower.
The existing potential for cotton and textile production and the availability of cheap labor is one the
major parameters for considering the sub-sector as one of the strategic export- promoting sector in the
country. Thus, the garment and textile industry has been identified as one of strategic economic areas
that have been given great attention and support by the government.
Given the potential of the raw material and the priority of the government for the textile and garment
sub-sector, the garment industry has a major role to play in the Region’s economy in general and export
trade in particular.
3.1.2 Projected Demand

As it is said above, there is no demand constraint for standard exportable men’s dress shirts. As long as
the factory can produce the product up to the standard and at a cost which can compete internationally,
any factory with such small capacity normally faces a perfectly elastic demand curve; it can sell all of its
output at the international price. Therefore, there will be sufficient demand for the product in the
international markets.
3.2 Pricing and Distribution
The average wholesale price of LDC made standard exportable men’s dress shirt ranges from Birr 60
(USD 6) per piece up to Birr 75 (USD 7.5) per piece. The envisaged project plans to sell its products at
average factory gate price of Birr 60 per piece (USD 6). The product will find its market outlet by
searching the international market through its marketing staff. 69% of the product export to African
countries.
3.3. Plant Capacity
The minimum economic capacity of men’s dress shirt making unit is around 800 shirts per day or
195,000 pieces per annum. It has one line and operates in two shift basis for 275 working days. The
working days are set by deducting all Sundays and public holidays, and assuming that annual
maintenance works and unexpected work interruptions will take 25 days.
3.4. Production Program
The production program follows gradual capacity utilization due to market and technological reasons.
Since this project targets the international market, some time is required to secure a reasonable market
size; while the technology refers to the speed with which the operators assimilate the process know how.
Accordingly, 50 % and 75 % capacity utilization are assumed for the first and the second years of the
operation, respectively. The third year onwards, 100 % capacity utilization is assumed. 69% of the
product export to African countries.
4. Raw Materials and Utilities
4.1. Availability and Source of Raw Materials
The main raw materials for the plant will be the textiles fabrics which are obtained from factories such
as Almeda Textile Factory, Akkaki Textile Factory, Bahir Dar Textile Factory, Dire-Dawa Textile
Factory, Kombolcha Textile Factory and Awassa Textile Factory; and some other raw materials like
Internal linings, Sewing Thread and Buttons are imported from countries such Italy, China etc.
Therefore, the company is going to use 69% of its raw material from local suppliers, with this manner
the company can save hard currency spent for raw materials.
4.2. Annual Requirement and Cost of Raw Materials and Utilities
The annual requirements of main raw materials at 100 % capacity utilization with their associated costs
are given in Table 4.1.
Table 1
ANNUAL RAW MATERIAL REQUIREMENT
(AT FULL CAPACITY)
Cost(In Birr)
No Raw Material Unit Qty.
F.C L.C Total
1 Cotton Fabrics M 2
290,000 8,700,000 5,800,000
2 Internal Lining Dozen 18,333 220,000 220,000
3 Sewing Thread Ton 1.1 66,000 66,000
4 Buttons Packet 3,520 70,400 70,400
Total 356,400 8,700,000 9,056,400

Electricity and water requirement is about 62.7 MWH and 1,000 m 3. The total annual cost of utility
capacity is equal to Birr 285,470.
Table 2
UTILITIES REQUIREMENT
No Utility Requirement (Annual) Unit Price/birr Cost (Birr)
.
1. Electricity 67,200 KWH 4 /KWH 36,960
2. Water 1,000 m3 3 /m3 3000
3 Lubricants 15l 48 720
4 Fuel gas 350l. 37 12950
28547
Total 0
 5.. Location and Site
For its convenience to procure raw materials and its access to the capital city to export the product to
different parts of the world, among ANRS’s towns BAHIR DAR zuria woreda is an appropriate choice
to establish exportable men’s dress shirt making factory in Amhara region.
6. Technology and Engineering
6.1 Production Process
Making of men’s dress shirt involves the following major steps.
1) Cutting Process
In the cutting process, the cloth is cut to the proper sizes, then is inspected, assorted, and arranged to
facilitate flow to the sewing process. Cut cloth must be combined with the interlining, if to be applied.
The cutting process consists of the following four processes:
Drawing
Drawing is a form of visual art in which an artist uses instruments to mark paper or other two-
dimensional surface. Drawing instruments include graphite pencils, pen and ink, various kinds
of paints, inked brushes, colored pencils, crayons, charcoal, chalk, pastels, erasers, markers, styluses,
and metals (such as silverpoint). Digital drawing is the act of drawing on graphics software in
a computer. Common methods of digital drawing include a stylus or finger on
a touchscreen device, stylus- or finger-to-touchpad, or in some cases, a mouse. There are many digital
art programs and devices.
A drawing instrument releases a small amount of material onto a surface, leaving a visible mark. The
most common support for drawing is paper, although other materials, such as cardboard, wood,
plastic, leather, canvas, and board, have been used. Temporary drawings may be made on
a blackboard or whiteboard. Drawing has been a popular and fundamental means of public expression
throughout human history. It is one of the simplest and most efficient means of communicating ideas.
 The wide availability of drawing instruments makes drawing one of the most common artistic
[1]

activities. In addition to its more artistic forms, drawing is frequently used in

commercial illustration, animation, architecture, engineering, and technical drawing. A quick, freehand
drawing, usually not intended as a finished work, is sometimes called a sketch. An artist who practices
or works in technical drawing may be called a drafter, draftsman, or draughtsman.
 In this process a paper pattern is placed on the cloth and the pattern is copied on the cloth.

(2) Cloth Laying

The cloth is spread and piled on the cutting table. Fabric spreading is very important part of the
production process because it is basic for obtaining a high-quality final product. Spreading is the process
of unwinding large rolls of fabric into long, wide tables in preparation for cutting each piece of a
garment. The number of layers of fabric is dictated by the number of garments desired and the fabric
thickness. Fabric Spreading Machines are used for bulk production.
Spreading or Laying
Spreading is the process of unwinding large rolls of fabric into long, wide tables in preparation for
cutting each piece of a garment. The number of layers of fabric is dictated by the number of garments
desired and the fabric thickness. Spreading can be done by hand or machine. Depending upon the fabric
and cutting technology, up to 200 layers of fabric may be cut at one time. Fabrics that are more difficult
to handle are generally cut in thinner stacks.
Spreading and cutting is smooth laying out of fabric in superimposed layers or piles of specified length.
The cutting marker is laid on the topmost layer. The maximum cutting width is the usable fabric width
minus selvedge or needle marks caused by stencil marks. Fabric utilization is the amount of fabric
actually utilized in the marker as the percentage of the total fabric area.
Forms of Spreading
One Way Cutting is when the fabric is laid the same way up with grain or print pattern running in the
same direction. The fabric has to be cut at the end of each ply.
The fact to Face Cutting is when the plies are laid in pairs face to face. The grain or pattern runs in the
same direction.
Two Way Cutting is when plies are laid continuously from left to right and right to left without cutting
at the end. Most Efficient method of spreading. Cannot be used with grain restrictions or one-directional
printed fabric.
Cutting
Cutting is one of the processes in garment manufacturing. In bulk garment manufacturing, multiple
fabric layers are cut at a time by means of cutting machines. Different types of cutting machines and
equipment are available for cutting fabrics and machines are used as per requirement and production
volume. Semi-automatic and automatic improves cutting room productivity and improves cutting
accuracy.
Different kinds type of Fabric Cutting Machines meet different customer needs,fabric sample cutting
machines are loved by the customers.The cutting blade is made of Japanese Imported alloy steel with
hardness 63-65, compare with ordinary cutting machine, SUNTECH Cutting Machines has longer
lifespan, increase customer's use feeling.Based on experience, SUNTECH will give suggestions to
choose fabric edge slitting cutters,ultrasonic cutter/cold cutter/heat cutter as options, meet the different
needs of customers.
Different Types of cutting Machines
Cutting machine and equipment can be categorized as following
Manual cutting
Semi-automatic cutting machine
Fully automatic cutting machine
1. Manual cutting Hand scissors are used for cutting fabric plies manually. Hand scissors are not
machines but very useful cutting equipment. Factories may have semi-automatic and fully automatic
machines for fabric cutting, but can’t avoid use of hand scissors in cutting section. Scissors are common
tool in cutting process and hand scissors ha many use in cutting room.
2. Semi-automatic cutting machines
Straight Knife cutting machine: The straight knife is a common means of cutting lays in conventional
cutting rooms because it is versatile, portable, cheaper than a band knife, more accurate on curves than a
round knife and relatively reliable and easy to maintain. Even if a band knife is used for the main cutting
operation, a straight knife would be used to separate the lay into sections for easier handling.
Band Knife cutting machine:
Band knives are used when a higher standard of cutting accuracy is required than can be obtained with a
straight knife. Pieces to be cut are first cut on a block, and then cut exactly on a band knife.
Round knife cutting machine: 
A round knife is used only for straight lines or lower no of lays of relatively few plies.
Die cutting machine: 
This machine is useful where small motifs with particular shape and pattern and accuracy in cutting are
needed.
3.Automaticcuttingmachines There are different types of automatic fabric cutting machines. Here
majorly used cutting machines in the garment industry are shown.

Computerized cutting machine:

Computerized cutting machines are used where high volume of garments is manufactured. This machine
cuts fabric layers as per command given in computer system. Automatic cutting machine is also known
as CNC machine. In the automatic cutting room, fabrics are spread on the table by auto spreader and the
lay is positioned in the cutting table prior to automatic cutting.
Different Types of Fabric Cutting Machines Used in Garment Production
Cutting is one of the processes in garment manufacturing. In bulk garment manufacturing, multiple
fabric layers are cut at a time by means of cutting machines. Different types of cutting machines and
equipment are available for cutting fabrics and machines are used as per requirement and production
volume. Semi-automatic and automatic improves cutting room productivityandimprovescuttingaccuracy.
Different Types of cutting Machines
Cutting machine and equipment can be categorized as following
Manual cutting
Semi-automatic cutting machine
Fully automatic cutting machine
Manual cutting
Hand scissors are used for cutting fabric plies manually. Hand scissors are not machines but very useful
cutting equipment. Factories may have semi-automatic and fully automatic machines for fabric cutting,
but can’t avoid use of hand scissors in cutting section. Scissors are common tool in cutting process and
hand scissors ha many use in cutting room.
2. Semi-automatic cutting machines
Straight Knife cutting machine:The straight knife is a common means of cutting lays in conventional
cutting rooms because it is versatile, portable, cheaper than a band knife, more accurate on curves than a
round knife and relatively reliable and easy to maintain. Even if a band knife is used for the main cutting
operation, a straight knife would be used to separate the lay into sections for easier handling.
 Straight knife cutting machine (Image source: Youtube/Rexel poland)
Band Knife cutting machine:
Band knives are used when a higher standard of cutting accuracy is required than can be obtained with a
straight knife. Pieces to be cut are first cut on a block, and then cut exactly on a band knife.

Band knife cutting machine (image source: Indiamart.com)

Round knife cutting machine: 

A round knife is used only for straight lines or lower no of lays of relatively few plies.
 Round knife cutting machine (image source: Indiamart.com)
Die cutting machine: 
This machine is useful where small motifs with particular shape and pattern and accuracy in cutting are
needed.

Die cutting machine

3. Automatic cutting machines
There are different types of automatic fabric cutting machines. Here majorly used cutting machines in
the garment industry are shown.
Computerized cutting machine:
Computerized cutting machines are used where high volume of garments is manufactured. This machine
cuts fabric layers as per command given in computer system. Automatic cutting machine is also known
as CNC machine. In the automatic cutting room, fabrics are spread on the table by auto spreader and the
lay is positioned in the cutting table prior to automatic cutting. Many videos are available on the You
tube for automatic cutting machines.

(4) Arrangement
 The cut cloth and interlining are inspected, assorted, and bundled, and a slip is attached to the bundle.
2) Sewing Process
In the sewing process, the cut cloth is sewn one by one and the whole cloths are made into the finished
product. Generally, each part of shirt is made at different section and the shirt is made in an integrating
way. As the workers become specialized the work is mastered in a short time, and efficiency is
improved. 80 % of the direct labor of the sewing factory serves for the sewing process.
3) Finishing Process
In the finishing process the completely sewn shirt is inspected, pressed for body finishing and collar
finishing, ironed to the proper shape and then folded and packaged.
4) packing and delivering
There is no alternative technology in sewing men’s dress shirt.
TECHNOLOGY: - nano technology this technology allows the textile and garment industry to
manufacture clothing with more scientific look out such as fire repellent, self-cleaning and produce
products using less energy making them sustainable.
6.2 Machinery and Equipment
The lists of machinery and equipments required to establish a men’s dress shirt making is given below
(Table 3).
TABLE 3
LIST OF MACHINERY AND EQUIPMENT
6.2.1 EACH MACHINE WORK STATION (WORKING AREA)
Work station is the working area of each machine that we get from knowing each machine width and
length, material, personal. In this case two alternatives can be used. First the machine width and length
get from the machine specification; second the material and personal area get from the smart estimation
and motion study for a given operator.

Unit
Workstation
Roll No Description Quantity Total (m2)
Area(m2)

For Garment making machineries

1 Straight knife cutting machine on table
2 2.0374 4.0748
2 Bias cutting and winding machine 2 2.0374 4.0748
3 Double needle lock stitch machine 5 2.0374 10.187
4 Semi Dry Head Double needle five thread over lock 71 2.0374 144.6554
stitch machine
5 Semi dry head high speed 2-needle 4-thread over lock 30 2.0374 61.122
stitch machine
6 Direct drive One needle lock stitch machine 50 2.0374 101.87
7 Computer controlling button holing machine 4 2.0374 8.1496
8 Computer controlling button attach machine 4 2.0374 8.1496
9 Computer controlling bar tacking machine 4 2.0374 8.1496
10 Multi needle sewing machine waist band 4 2.0374 8.1496
11 Multi needle sewing machine stripe 4 2.0374 8.1496
12 Semi Dry Head Cylinder bed top & bottom cover stitch 10 2.0374 20.374
machine
13 Flat bed top and bottom cover stitch machine 10 2.0374 20.374
14 SNLS machine with vertical edge trimmer 6 2.0374 12.2244
15 Embroidery machine (head) 1 5.6 5.6
16 Twelve needle flat bed double chain stitch machine 5 2.0374 10.187
17 Mini open side fusing press machine 2 5.83 11.66
18 Stain removing machine 3 0.38 1.14
19 Pneumatic collar turning and trimming machine 2 2.0374 4.0748
20 Thread trimmer machine 1 2.0374 2.0374
21 Feed of the arm 4 2.0374 8.1496
Sum 462.6

Sub-total area= Net required area +13% 0f it (aisle allowance)= 462.6 +462.6*.13=522.74

Generator, boiler and compressor area

12 Generator 1 28 28
13 Boiler 16 kw 2 0.96 1.92
14 Compressor 1000 litter 1 0.96 0.96
15 Tanker 1 6.25 6.25
Sum 37.13
 Sub-total area= Net required area +13% 0f it (aisle allowance)= 37.13+37.13* 0.13 =41.96

Unit
Roll Workstation
Description Quantity Total (m2)
No Area(m2)

Other Equipments
38 Pattern making table 2 1.5 3
39 Mark table 2 1.5 3
40 Spreader table 4 8 32
41 Ironing table 14 0.308 4.312
Sum 42.312

Sub-total area= Net required area +13% 0f it (aisle allowance)=42.312+42.312*.13=47.81256

The total production areas is 612.51m2

6.2.2 SPACE REQUIREMENT FOR NON PRODUCTION AREA
As mention above the non production area set a standard, this standard multiplies by number of worker
we get the required area
Roll Area(m2) Total
No Description (m2)
01 General director office 1*43=43 43
02 Individual office 12*18.5 222
03 Cafeteria 510*0.929 473.8
04 Locker 497*0.67 332.99
05 Toilet, shower, and hand wash room (for male) 76.93 76.93
06 Toilet, shower, and hand wash room (for female) 76.93 76.93
07 Parking area 9.67+16.77 26.44
08 First aid 2*23 46
09 Raw material storage 100 100
10 Finished product storage 100 100
11 Docking area 36 36
12 heat treatment(curing) 15.96 15.96
13 Maintenance room 81.6 81.6
14 Packing area 66 66
15 Guard house 25 25
16 Green area 300 300
17 Product display room 50 50
Sub total 2072.65

Productions areas + non production areas = 612.51+2072.65=2685.16 m2

The total land required for the garment factory is 12,000m2
The total cost of machinery/equipment is estimated at Birr 40 million ETB

7.Civil Engineering Cost

The building area required by the plant is estimated to be 12,000m 2, and the cost depends on the lease
proclamation of ANRS. The civil work will cost 3,500,000birr. The cost of the land lease is as per
ANRS land lease rate for BAHIR DAR for industrial purpose. Of the total cost of the lease, 5 % is paid
in the beginning while the rest will be paid in 40years.
8.Human Resource and Training Requirement
8.1Human Resource
The organizational structure of the project is designed by including all the neccery personel under the
right division. At the top of the organizational structure there will be manager with the responsibility of
supervising the overall activity of the plant. Depending up on the nature of the center and amount of
work to be performs;there exist auxiliary units under the general manager.
Employees under each unit will be supervised by the department head that is accountable for the general
manager. General manager is appointed by the owners of this industry.
Management
The organizational structure of this industry should be in a way that the company able to achieve its
objectives as well as the satisfaction of the standard requirement of the project.
Manpower
The company will use efficient trained stuffs in the area of marketing to be competitive supplier of the
finished products. The opportunities of begin serviced by well skilled professionals will enable the
company to evaluate the internal weakness and strength of the company as well as to assess the global
opportunity and risk in the world market so that the company can cope up with the dynamics of the
market situation. The company will hire a total of 139 employees.
Details of the manpower requirement of the plant is shown in Table 4

Table 4
MANPOWER REQUIREMENT
 Description No Monthly Salary (Birr) Annual
Salary (Birr)
A. Administration
1. Manager 1 18000 36000
2. Marketing 1 12000
Manager 24000
3. Supervisors 2 8000 16000
4. Technicians 3 10000 30000
5. Personnel Officer 1 6000 6000
6. Accountant 1 6000 6000
7.Seretary 1 3000 3000
8. Cashier 1 3000 3000
9. Storekeeper 1 3000 3000
10.Guards 8 3500 28000
Sub-total 13 170,400
B. Production
11. Skilled Workers 86 3500
(Tailors and Others) 480000
12. Semi-skilled 40 3000
Workers (laborers) 72000
Benefits (20%) 144,480

65 140 866,880

The total annual wages and salary, including 20 % benefits, amount to Birr 866,880
8.2 Training Requirement
One month on job training is required for the technical personnel. And, this can be managed by hiring
two experts in the area from the technology suppliers.

9. Financial Analysis
9.1 Underlying Assumption
The financial analysis of Men’s Dress Shirt Making plant is based on the data provided in the preceding
chapters and the following assumptions.
Construction and Finance
Construction Period 2 Years
Source Of Finance 15% Equity and 85% Loan
Tax Holidays 2 Years
Bank Interest Rate 12%
Discount For Cash Flow 18%
Value Of Land Based on Lease Rate of ANRS
Spare Parts, Repair & Maintenance 3% of the Fixed Investment

Depreciation

Building 5%
Machinery And Equipment 10%
Office Furniture 10%
Vehicles 20%
Pre-Production (Amortization) 20%

Working Capital (Minimum Days of Coverage)

Raw Material-Local 30 Days
Raw Material-Foreign 120 Days
Factory Supplies In Stock 30 Days
Spare Parts In Stock And
Maintenance 30 Days
Work In Progress 10 Days
Finished Products 15 Days
Accounts Receivable 30 Days
Cash In Hand 30 Days
Accounts Payable Ays

10. Investment
The total investment cost of the project including working capital is estimated at Birr 160 million as
shown in Table 5 below. The owner shall contribute 15 % of the finance in the form of equity while the
remaining 85% is to be financed by bank loan.
Table 5
Total Initial Investment
Items L.C F.C Total
Land 2,800,000 2,800,000
Building And Civil
Works 3,500,000 3,500,000
Office Equipment 300,000 300,000
Vehicles  4,500,000 4,500,000
Plant Machinery &
Equipment 0 40,000,000 40,000,000
Total Fixed Investment
Cost 6,600,000 44,500,000 51,100,000
Pre Production Capital
Expenditure* 865,000 865,000
Total Initial
Investment 7,465,000 44,500,000 51,965,000
Working Capital at
Full Capacity 30,000,000 48,035,000 78,035,000
Total 37,465,000 92,535,000 130,000,000
Pre-production capital expenditure includes - all expenses for pre-investment studies, consultancy fee
during construction and expenses for company‘s establishment, project administration expenses,
commission expenses, preproduction marketing and interest expenses during construction.

10.1 Production Costs

The total production cost at initial capacity operation is estimated at Birr 11.1 million (See Table 6).
Raw materials and utilities account for 85.8 %.
Table 6
PRODUCTION COST
 Raw Material Requirement Cost
1.Local Raw Materials 8,700,000
2.Foreign Raw Materials 356,400
Total Production Cost at full Capacity
Items Cost
1.      Raw materials 9,056,400
2.      Utilities 39,610
3.      Wages and Salaries 866,880
4.      Spares and Maintenance 84,164
Factory Costs 10,047,054
5.      Depreciation 248,055
6.      Financial Costs 300,718
  Total Production Cost 10,595,826

a. Financial Evaluation
Profitability
According to the projected income statement (See Annex 4) the project will generate profit beginning
from the first year of operation and increases on wards. The income statement and other profitability
indicators also show that the project is viable.
I.Breakeven Analysis
The breakeven point of the projects is given by the formula:
BEP = Fixed Cost
Sale –Variable Cost at full capacity.
The project will break even at 18 % of capacity utilization
Payback Period
Investment cost and income statement projection are used in estimating the project payback period. The
project will payback fully the initial investment less working capital in two years.
Simple Rate of Return
The project’s simple rate of return (SRR) is given by the formula:
SRR= (Net Profit + Interest)/ (Total Investment Outlay) at full capacity utilization.
The SRR would be 41 % at full capacity utilization.
Internal Rate of Return and Net Present Value
Based on cash flow statement (See Annex 2) the calculated internal rate of return (IRR) of the project is
44.9 % and the net present value (NPV) at 18 % discount.
Sensitivity Analysis
The sensitivity test result which undertaken by increasing the cost of production by 10 % still indicates
that the project would be viable.
10.2 Annual production at full capacity
Furthermore in order to draw up the production program, three factors were considered including the
time required for developing skill in the operation of the plant machinery by the operators, time needed
to fully penetrate the market and develop the image of the product on the market. The project is assumed
to start the implementation of the program at at the beginning of dec. 2015 and commence the
production in nearly june 2015 at 50% while the capacity was was assumed to reach 75% in third and
100%therenafter.
Table 7 annual production of the project
s.no Production Year 1 Year 2 Year 3
1 Shirt 850000 1200000 1487500
2 T shirt 760000 850000 1120000
3 Underwear 980000 110000 1346700
Utilization of rated capacity 50% 75% 100%

10.3 Production costs

Description 2011 2012 2013 2014 2015 2016 2017 2018

Raw material
Imported 12365 144265 164875 185484 206094 216398 227218 23857
material 6 9
chemicals 13571 15835.4 18096.9 20363 22622 23753 24941 26188
.7
Salary 1245. 1525.3 1743.2 1961.2 2179.1 2288 2402.4 2522.5
2
Travel and 42 44.1 46.3 48.6 51.1 53.6 56.3 59.1
perdiem
Workrs benefit 311.3 381.3 435.8 490.3 544.8 572 600.6 630.6
Uniform and 36 37.8 39.7 41.7 43.8 45.9 48.2 50.7
protective cloth
Stationary print 25 26.3 27.6 28.9 30.4 31.9 33.5 35.2
and office
 supplies
Repair and 1833. 1833 1833 1833.0 1833 1833 1833 1833
maintenance 0
Insurance 634.4 634.4 634.4 634.4 634.4 634.4 634.4 634.4
Utilities 648 680 864 972 1080 1134 1191 1250
expense
Fuel and 140.8 147.8 155.2 163 171.1 179.7 188.7 198.1
lubricants
Audit and legal 50 52.5 55.1 57.9 60.8 63.8 67 70.4
fee
Depreciation 14821 14821 14821 14821 14821 14821 14821 14821
Promotion cost 75.5 79.3 83.2 87.4 91.8 96.4 101.2 106.2
Operating cost 15709 180364.1 203710.3 226986.6 250256.6 261905 274135.8 28697
0 8.2
Interest rate 15616 14635 13519 12249 10805 9162 7294
Total 15709 195980 218345 240506 262506 272710 283298 29427
production cost 0 2

10.4 source of fund

s. Description %share Amount in birr

n
1 Owners share 30 17000000
2 Bank loan 70 43000000
Total 60000000

10.5 loan repayment schedule

Year Principal Interest(10%) Total annual payment Remaining

payment balance
0 0 43000000
1 4300000 4360000 8200000 35400000
2 4300000 3540000 7900000 27500000
 3 4300000 2750000 7110000 29390000
4 4300000 2939000 7299000 22091000
5 4300000 2209100 6569100 15521900
6 4300000 1552190 5912190 9609710
7 4300000 960971 5320971 4288739
8 4300000 428873 4788873 500134
9 4300000 50013.4 44100134 4410013.4
10 4300000 4300000 4300000 4300000

10.6 Depreciation schedule

s. Description Original value in birr Depreciation rate Deprectiation
n in % per year
1 Construction and civil 15200000 5 276125
works
2 Machine and equipment 34600000 10 1017000
3 Vehicles 1440000 20 150000
4 Office equipment 60000 10 20335

10.7 Balance sheet

Asset
Current asset Value in birr
Cash 3110032
Initial inventory of raw materials 6280050
and input
Total current asset 8810720
Fixed asset
Land,building and construction 15200000
Machines and equipment 34600000
Office equipment 670000
Vehicles 2250000
Total fixed asset
Total asset 60000000
 Liability
Account payable 43600000
Owners equity
Capital 18400000
Total liability and owners equity 60000000
10.8 Income/loss statement
Year 2 Year 3-10
2,462,4000 30,780,000
Revenue Year 1
Gross profit 7,377,810 Sales revenue 16929000
Expense Purchase of raw 9551190
material
Salary expense 929,016 1,351,296 1689120
Other operating 649,179.03 944,260 1180325.50
expense
Pre-operation 47,000
expense
Depreciation 276,125 276,125 276125
building
Depreciation 1,017,000 1017000 1017000
machineries
Depreciation 150,000 150000 150000
vehicles
Depreciation 20,335 20335 20335
office equip
Interest expense 1,400,007.49 1260006.74 1120005.99
Lease payment 90,000 90000 90000
Total expense 4578662.52 5109023.14 5542911.49
Profit before tax 2799147.48 5622336.86 7871288.51
Tax(30%) 2361386.55
Net profit 2799147.48 5622336.86 5509901.95
11. Economic and Social Benefit and Justification
Based on the foregoing presentation and analysis, we can learn that the proposed project possesses wide
range of benefits that complement the financial feasibility obtained earlier. In general, the envisaged
project promotes the socio-economic goals and objectives stated in the strategic plan of the Amhara
National Regional State. These benefits are listed as follows:
Profit Generation
The project is found to be financially viable and earns on average a profit of Birr 1.8 million per year
and Birr 17.7 million within the project life. Such result induces the project promoters to reinvest the
profit which, therefore, increases the investment magnitude in the region.
Tax Revenue
In the project life under consideration, the region will collect about Birr 6.6 million from corporate tax
payment alone (i.e. excluding income tax, sales tax and VAT). Such result create additional fund for the
regional government that will be used in expanding social and other basic services in the region
Export Promotion and Foreign Exchange Earning
Based on the projected figure we learn that in the project life an estimated amount of US Dollar 12.2
million will be earned as a result of the proposed project. This will create an additional hard currency to
be allocated on vital and strategic sectors
Employment and Income Generation
The proposed project is expected to create employment opportunity to several citizens of the country.
That is, it will provide permanent employment to 139 professionals as well as support stuffs.
Consequently the project creates income of Birr 867 thousands per year. This would be one of the
commendable accomplishments of the project.
Pro Environment Project
The proposed production process is environment friendly.
 12. The plant and machine layout
1 EACH MACHINE WORK STATION (WORKING AREA)
Work station is the working area of each machine that we get from knowing each machine width and
length, material, personal. In this case two alternatives can be used. First the machine width and length
get from the machine specification; second the material and personal area get from the smart estimation
and motion study for a given operator.

Unit
Workstatio
Roll No Description Quantity Total (m2)
n Area(m2)

For Garment making machineries

1 Straight knife cutting machine on table
2 2.0374 4.0748
2 Bias cutting and winding machine 2 2.0374 4.0748
3 Double needle lock stitch machine 5 2.0374 10.187
4 Semi Dry Head Double needle five thread over lock 71 2.0374 144.6554
stitch machine
5 Semi dry head high speed 2-needle 4-thread over 30 2.0374 61.122
lock stitch machine
6 Direct drive One needle lock stitch machine 50 2.0374 101.87
7 Computer controlling button holing machine 4 2.0374 8.1496
8 Computer controlling button attach machine 4 2.0374 8.1496
9 Computer controlling bar tacking machine 4 2.0374 8.1496
10 Multi needle sewing machine waist band 4 2.0374 8.1496
11 Multi needle sewing machine stripe 4 2.0374 8.1496
12 Semi Dry Head Cylinder bed top & bottom cover 10 2.0374 20.374
stitch machine
13 Flat bed top and bottom cover stitch machine 10 2.0374 20.374
14 SNLS machine with vertical edge trimmer 6 2.0374 12.2244
15 Embroidery machine (head) 1 5.6 5.6
16 Twelve needle flat bed double chain stitch machine 5 2.0374 10.187
17 Mini open side fusing press machine 2 5.83 11.66
18 Stain removing machine 3 0.38 1.14
19 Pneumatic collar turning and trimming machine 2 2.0374 4.0748
20 Thread trimmer machine 1 2.0374 2.0374
21 Feed of the arm 4 2.0374 8.1496
Sum 462.6

Sub-total area= Net required area +13% 0f it (aisle allowance)= 462.6 +462.6*.13=522.74
 Generator, boiler and compressor area
12 Generator 1 28 28
13 Boiler 16 kw 2 0.96 1.92
14 Compressor 1000 litter 1 0.96 0.96
15 Tanker 1 6.25 6.25
Sum 37.13

Sub-total area= Net required area +13% 0f it (aisle allowance)= 37.13+37.13* 0.13 =41.96

Unit
Roll Workstation
Description Quantity Total (m2)
No Area(m2)

Other Equipments
38 Pattern making table 2 1.5 3
39 Mark table 2 1.5 3
40 Spreader table 4 8 32
41 Ironing table 14 0.308 4.312
Sum 42.312

Sub-total area= Net required area +13% 0f it (aisle allowance)=42.312+42.312*.13=47.81256

The total production areas is 612.51m2

6.2.2 SPACE REQUIREMENT FOR NON PRODUCTION AREA
As mention above the non production area set a standard, this standard multiplies by number of worker
we get the required area
Roll Area(m2) Total
Description
No (m2)
01 General director office 1*43=43 43
02 Individual office 12*18.5 222
03 Cafeteria 510*0.929 473.8
04 Locker 497*0.67 332.99
05 Toilet, shower, and hand wash room (for male) 76.93 76.93
06 Toilet, shower, and hand wash room (for female) 76.93 76.93
07 Parking area 9.67+16.77 26.44
08 First aid 2*23 46
09 Raw material storage 100 100
10 Finished product storage 100 100
11 Docking area 36 36
12 heat treatment(curing) 15.96 15.96
 13 Maintenance room 81.6 81.6
14 Packing area 66 66
15 Guard house 25 25
16 Green area 300 300
17 Product display room 50 50
Sub total 2072.65

Productions areas + non production areas = 6012.51+2072.65=8685.16 m2

The total land required for the garment factory is production area plus nonproduction area multiplied by
land to building ratio 10,000m2
The total cost of machinery/equipment is estimated at Birr 40 million ETB