How to Calculate Cost of Manufacturing Apparel Products
Estimating correct manufacturing cost is essential for a successful business. You might be preparing garment cost sheet and need to find manufacturing cost per garment. But don’t know exactly how to do it and don’t have full confidence calculating the same. Don’t worry. Read this post and learn the basic method of determining Cost of Manufacturing (CM) of apparel products.
- 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. But to many small size companies no such resources available 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. 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 daily operating cost. Calculate per machine operating cost.
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.
2. CM Calculation Based on Daily Production Figure
This method is widely used by garment manufacturing factories. Cost of Manufacturing calculation is done based on historical production data. This is an easier method compared to above one.
Information needed to find Cost of Manufacturing
- Daily production: Find average daily production of a particular style (garment) based on earlier (historical) production figures. Calculate daily average production of the factory.
- Manpower involved in production: How many sewing machines or sewing operators are utilized to produce 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, daily product 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.