How to Calculate Garment Production Cost from SMV and Monthly Salary Data

Some of factories calculate CM (cost of manufacturing) of a garment by the machine SMV multiply with earnings per minute. And this earning per minute calculate based on monthly factory cost divided by monthly produced minute. Is this logical? ... by Emon

Yes, many factories in the apparel industry use the method that you mentioned in your question for calculating the direct cost of production. From garment SMV and minute cost data, direct labour cost is calculated.

This is logical, provided the standard minutes (SMV) of operations are correct and cost per minute is derived from a reasonable monthly salary amount (maybe minimum wages/higher than minimum wages). Further, you need to incorporate line efficiency for deriving the labour cost. The monthly salary of direct manpower may vary depending on the employee's skill and grading. You also need to adjust the combined daily earning of an operator, to make it a satisfactory amount.

When you talk about production cost, either it is an estimated production cost or the actual garment production cost. In the subject line, production cost means the estimated production cost before you make the style. The actual production cost per day and the actual cost incurred in a style can be calculated from the real employee attendance data (number of manpower involved in making the style) and their daily wages.

On the other hand, when we need to estimate production cost (direct labour cost) for the whole order, it can not be calculated directly as we don't know how many manpower will actually involve making the order. Salary will be different for different employees. Most importantly, we can't guess how many garments they will produce daily and how many days will be consumed to complete the order.

In such a situation, the best ay of estimating garment production cost is following standard time, cost per minute and benchmark efficiency.

Labor cost per garment = (Garment SAM x Labor cost per minute)/ Line Efficiency%

Production cost for the whole order = (Labour cost per garment x Order Quantity)

Let's see one example. One team made 400 shirts of 23 minutes SMV in a day. Another team made 350 shirts of 23 minutes SMV in a day. If the same number of manpower (50 manpower in each team) involved in two teams who are getting a similar salary, cost per garment would be different for these two teams. As a result, the cost of the whole order will be different in these two cases.

In such cases, you need to consider line efficiency for calculating production cost.

Related post: How to Find Labor Cost for Garment Manufacturing Using Work Measurement Data?