How to Calculate Standard Hours Earned, Operator Efficiency and Labour Cost?

Question: A rate of 0.78 minutes per piece is standard for a sewing operation. Operator works on a job for a 12 hours day and produces 1750 pieces.
1. How many standard hours does the operator earn?
2. What is the operator efficiency on the day?
3. If the base rate is R7.50 per hour compute the earnings for a day using the 100% time premium plan.
4. What is the direct labour cost per piece using this efficiency?  ... asked by Humbe

OCS's Answer:

To calculate above factors I am giving you formula here and using above information will show you the result one by one.

1. Operator Standard hour earning

Standard hours (SAH) earned = (SAM of the operation X pieces produced/60)
So operator SAH earned  = 0.78 X 1750/60 = 22.75

2. Operator Efficiency%

Operator efficiency (On-standard) in percentage = (Total SAH Earned  X 100 / Total hours worked)
= 0.78 X 1750X100 / (60 X 12) = 22.75 X100 / 12 = 189.58%

3. Operator Earnings

Operator earning depends as per operator employment category. If operator is a piece rate operator than he will earn based on SAH earning i.e. R 7.50 X 22.75 = R 170.62

Or if operator is salaried employee he will earn guaranteed pay for minimum shift hours (i.e. 8 hours) and for overtime (i.e. 4 hours) he will get single or twice of normal hour rate per hour. Hope you have the details of monthly operator salary and overtime rate. Divide monthly salary by number of working days in a month to calculate daily salary plus overtime payment.

4. Direct Labour Cost per Piece

Direct labour cost per piece (For first payment method)
= Total earning by the operator / Number of pieces produced
= R 170.62/1750 = R 0.0975 (only for the ongoing operation not the complete garment)

Second method of calculating direct labour cost per piece.
Direct labour cost per piece  = Direct labor cost per minute X Garment SAM
Where, cost per minute = Daily wages /Total SAM produced in a day.
Find daily labour wages and garment SAM from the factory and use this formula to calculate your direct labour cost per piece.

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