To run a profitable business in apparel, accurately estimating the manufacturing cost is imperative. If you’re attempting to draft a garment cost sheet and are unsure about determining the manufacturing cost per garment, this guide will provide clarity.
Defining Cost of Manufacturing
The cost of manufacturing for apparel refers to the expenses borne by a factory in its operation to produce garments. This encompasses direct labor expenses and manufacturing overhead. Manufacturing overhead includes salaries of indirect labor, administrative staff, costs of power and fuel, maintenance and repair charges, rent for the factory, and administrative costs. Another term for this is operating cost. It’s vital to ascertain this cost on a per-unit basis.
There are primarily two methods to determine the Cost of Manufacturing (CM) for a specific apparel style or order:
1. Relying on the Standard Time (SAM) of the product.
2. Using the Daily Production Average.
1. Using Standard Time (SAM) for CM Calculation
For a more precise cost estimation, this method is preferred. However, not all small-scale businesses have the means to gauge product SAM or the necessary data. Here are the key parameters for this method:
– Product SAM: This is the established time needed for creating a garment. It’s measured via Time Study or synthetic data.
– Target Efficiency: This percentage signifies the expected efficiency for producing a certain product and order volume.
– Operating Cost per day/machine: As the name suggests, it’s the daily cost to run a machine. First, determine the monthly operating expense, and from there, derive the daily cost per machine.
Formula:
{Cost of Manufacturing} = (Operating cost per day per machine x SAM)}}{{(Target Efficiency% x Working hours x 60)}]
For instance, if a garment’s SAM is 21 minutes and the target efficiency is 60%, the actual production time per garment is 35 minutes. If the factory operates for 8 hours daily and the machine’s daily cost is Rs. 1022, the manufacturing cost amounts to Rs. 74.52.
2. Using Daily Production Figures for CM Calculation
This approach is commonly adopted by apparel producers. The CM is derived from past production data, offering a simpler way than the SAM-based method.
To determine the Cost of Manufacturing, you need:
– Daily production: Determine the average daily production rate for a specific style using past production data.
– Manpower for production: Ascertain the number of sewing machines or operators needed for the said production volume.
– Operating cost per day/machine: As discussed earlier.
Formula:
{Cost of Manufacturing} ={Operating cost per Day}*{Total garments produced daily}
For example, if daily production yields 550 garments, and 40 operators are needed, with an operating machine cost of Rs. 1022 daily, the manufacturing cost stands at Rs. 74.33.
*Note: The numbers provided are for illustrative purposes.*
To dive deeper, you might also be interested in understanding how factory overheads factor into garment export businesses.
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