Estimating garment manufacturing cost is a crucial task for apparel manufacturers. Deriving the a accurate costs for the new orders need knowledge and awareness of the factors that effective the production cost for the bulk order. In this article, I will brief you the steps to calculate cost of garment manufacturing (CM) for apparel production.
In garment 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
- 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?
Step-1: Calculate labor costStep-2: Calculate labor cost per minute (CPM)
Operator monthly salary is INR 12000.00
Total available capacity per month (in minute) = (26 working days x 8 hours per day x 60)=12,480 minutes
So, per minute cost of the direct labor = (12,000/12,480) = 0.96 INR at 100% efficiency. This CPM is the actual labor cost per minite.
Calculate the projected labor cost per pieces
Once you have the labor cost per minute value from the monthly salary, calculate cost of manufacturing (CM) using the following formula.CM cost = (SAM of the garment x Minute cost of the labor)/Line efficiency(%)
(Minute cost determined from above formula shown in Step-1. If you use the second formula then don't divide by line efficiency)
Example:
Cutting SAM is 2 minutes and cutting room perform at 50% efficiency then the estimated cutting cost is (2 x 0.96)/50%=3.84 INR
So, Total estimated CM cost of the garment = (28.80+3.84) = 32.64 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 cost calculation?
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 operators * Total minutes per operator per month) to have more accurate value.