In clothing manufacturing, the supplier gives final manufacturing cost to a buyer prior to order confirmation. For that factory prepares cost sheet estimating costs in different cost heads. Cost heads like Fabric, Trims and Packing Materials, Labor Cost, and Overheads.
At the costing stage, the supplier only gets one sample of the garment and specification of fabric and trims for the reference. For raw material cost suppliers directly take price quotes from fabric and trim suppliers. For labour cost, it is very important to estimate as near as it will be during actual production.
The scientific method for estimating CM (Cut and make) cost of a garment involves following steps
But no line can perform at 100% efficiency, so labor cost per minute increases when line efficiency goes down. So correct way to calculate labor cost per minute is
Operator monthly salary is INR 5000.00
Total available capacity per month (in minute) = 26 working days*8 hours/day*60=12,480 minutes
So, per minute cost of the direct labor = 5000/12480 = 0.4006 INR at 100% efficiency
Formula for the projected labor cost per pieces
CM cost = (SAM of the garment * Minute cost of the labor)/Line efficiency(%)
(Minute cost determined from above formula#1. If you use the second formula then don't divide by line efficiency)
If Sewing SAM is 15 minutes and line perform at 50% efficiency then estimated garment make cost = 15*0.40/50% =12 INR
And Cutting SAM is 2 minutes and cutting room perform at 50% efficiency then estimated cutting cost = 2*0.40/50%=1.6 INR
So, Total estimated CM cost of the garment = (12.00+1.60) = 13.60 INR
Following above formula easily one can estimate garment CM cost and use it for the product costing.
Note: For the calculation of labour cost per minute, instead of average operator salary you can take cumulative of all operators salary (monthly) and divide total amounts by total minute available to the line (total operator * total minutes per operator per month) to have more accurate value.
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At the costing stage, the supplier only gets one sample of the garment and specification of fabric and trims for the reference. For raw material cost suppliers directly take price quotes from fabric and trim suppliers. For labour cost, it is very important to estimate as near as it will be during actual production.
The scientific method for estimating CM (Cut and make) cost of a garment involves following steps
- Determine SAM of the garment (refer garment SAM calculation)
- Calculate average line efficiency and
- Calculate direct labor cost per minute
How to calculate the minute cost of the operator?
Formula:#1. Labor cost per minute = (Monthly salary of an operators/Total minutes available in the month) at 100% efficiency.
But no line can perform at 100% efficiency, so labor cost per minute increases when line efficiency goes down. So correct way to calculate labor cost per minute is
#2. Labor cost per minute = Total salary of the labors in a month / Total SAM produced by those labors in that month.Example:
Operator monthly salary is INR 5000.00
Total available capacity per month (in minute) = 26 working days*8 hours/day*60=12,480 minutes
So, per minute cost of the direct labor = 5000/12480 = 0.4006 INR at 100% efficiency
Formula for the projected labor cost per pieces
CM cost = (SAM of the garment * Minute cost of the labor)/Line efficiency(%)
(Minute cost determined from above formula#1. If you use the second formula then don't divide by line efficiency)
If Sewing SAM is 15 minutes and line perform at 50% efficiency then estimated garment make cost = 15*0.40/50% =12 INR
And Cutting SAM is 2 minutes and cutting room perform at 50% efficiency then estimated cutting cost = 2*0.40/50%=1.6 INR
So, Total estimated CM cost of the garment = (12.00+1.60) = 13.60 INR
Following above formula easily one can estimate garment CM cost and use it for the product costing.
Why do you need to consider line efficiency in CM costing?
Line output varies depending on the line efficiency. When a line performs at lower efficiency than standard (100%) line will produce fewer units in a day compared to what line could make at 100% efficiency. But the factory spends the same amount of money as salary whether line performs at 100% efficiency or less. So, per unit cost will increase when the line performs at lower efficiency.Note: For the calculation of labour cost per minute, instead of average operator salary you can take cumulative of all operators salary (monthly) and divide total amounts by total minute available to the line (total operator * total minutes per operator per month) to have more accurate value.
Related Articles:
Actual Garment Production Cost – The way factory calculates it
How to Calculate Raw Material Cost for Garments?
Garment Production Cost: Actual Cost Vs Cost Per SAM
Cost breakdown of a Men's woven shirt sold in USA market
Costing and negotiation skills for merchandisers