Read this post and learn the basic method of determining the Cost of Manufacturing (CM) of apparel products.
What is the cost of manufacturing
- Based on Standard Time (SAM) of the product
- Based on Daily Production Average
1. CM Calculation Based on Standard Time (SAM) of Product Making
To get better accuracy in cost estimation one should prefer this procedure. Many small-size companies do not have such resources to measure product SAM and data for the following parameters. Following parameters are essential for cost calculation in this method.
- Product SAM: Standard time of the garment. The standard time of a garment is measured by using Time Study and using synthetic data.
- Target Efficiency: Target efficiency percentage is at what % you are expecting running a specific product and order quantity.
- Operating Cost per day/machine – Operating cost is factory running cost. Operating costs are all cost incurred to run the business other than material cost. Calculate monthly operating cost and then calculate the daily operating cost. Calculate per machine operating cost.
Formula:
Cost of Manufacturing = (Operating cost per day per machine* SAM)/(Target Efficiency% * Working hours * 60)
In the following table, an example is shown for calculating manufacturing cost using SAM and Daily Production figure.
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| Table-1: Calculation of Cost of Manufacturing |
In the above example, garment SAM is 21 minute, target efficiency 60%. So, the actual time would be 35 minutes to make a garment. The factory works 8 hours a day and operating cost per day per machine is Rs. 1022.
Cost of manufacturing is Rs. 74.52
2. CM Calculation Based on Daily Production Figure
Information needed to find Cost of Manufacturing
- Daily production: Find the average daily production of a particular style (garment) based on earlier (historical) production figures. Calculate the daily average production of the factory.
- Manpower involved in production: How many sewing machines or sewing operators are utilized to produce the above quantity.
- Operating cost per day/machine: As explained above.
Cost of Manufacturing = (Operating cost per Day / Total garments to be produced per day)
See the example method -2 in the above table. In the example, the daily production is 550 pieces. 40 operators worked to produce these pieces. Operating cost per machine is Rs. 1022 per day.
Also read: Actual Garment Production Cost -the way factory calculates it
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