One of the highest manufacturing industry is garments manufacturing industry where different types of garments are manufactured. Calculate Garments cost of making time to time is the right decision because the main motive of garments manufacturer is to make a profit where they manufacture garments and then sell it. But the problem is, what should be the required price of that item and how to calculate the garments cost of making. To solve this problem first, you have to know the cost of garments making then add your markup price to set the selling price. Here cost of making means the cost of manufacturing garments. Monitoring garments making cost is necessary so that trends of the cost of making can be identified and you can actually know whether your garments making cost is increasing or decreasing. Based on your change in garments cost of making you may take decision accordingly.
Calculate Garments Cost of Making
Pre Requirement of Calculation of Garments Cost of Making
Before you start your costing you need to know the followings:
- Total Cost (TC) = Fixed Cost (FC) + Variable Cost (VC)
- Production Capacity of Your Machine (Hourly)
- Total Effective Working Hours Per Day
- Number of Days Operation in a Month
Fixed Cost of Garments Making
Fixed Cost are those cost of garments manufacturing which are fixed in nature. With the increase of a number of unit of production, your per unit fixed cost will be reduced. Some example of fixed cost is; salaries and wages, interest expense of bank loan, a rental expense of your factory building, depreciation expense of your fixed assets etc.
Variable Cost of Garments Making
Variable cost is the cost which is change over an additional number of unit of production. But per unit variable cost is fixed. The variable expense of garments making is; Utility (Electricity cost, Water cost, steam cost, Air cost) Expenditures, transportation cost, repair, and maintenance expense etc. Here the most crucial variable cost is utility cost. We need to carefully handle utility section to minimize utility cost.
Hourly Total Production Capacity of Garments Machinery
To identify hourly total production capacity, you need to identify the total number of machine and capacity of each machine. After that, you need to multiply the hourly capacity with machine number.
Daily Production Capacity of Garments
For calculating daily production of your garments, you need to multiply your hourly effective production capacity into working hours each day.
Monthly Production Capacity of Garments
To calculate monthly production capacity you have to multiply your daily production capacity with the number of working days in a month.
Costing of Utility of Garments
- Electricity: To get electricity cost you need to identify the total kW consumption of your factory and then multiply total KW with Price of per Kw electricity. Remember the cost of electricity is much higher in case of fuel generator and local REB compared with Gas Generator.
- Water: Water cost is the cost of collecting water and the filtering cost. Normally in textile and garments, De-Mineralized (DM) water is used.
- Steam: First identify total consumption of steam per machine each hour and then multiply with the number of machines.
- Compressed Air: In case of air you have to identify the compressed air cost for per cubic meter then multiplies with the total consumption.
The formula of Calculating Garments Cost of Making
Monthly Garments Cost of Making (GCM) = (Monthly Total Cost of Garments Operation)/Monthly Total Output Produced by the Factory.
- Here Total Cost include both fixed and variable Cost of your garments factory for one month
- Monthly total Production is the output produced by the factory.
Example: Suppose Your Factory Costing Related Information are;
- Salary & Wages Expense Tk. 20,000,000
- Monthly Interest on Bank Loan Tk. 100,000
- Depreciation Expense is Tk. 50,000
- Rental Expense of Building is Tk. 200,000
- Transportation Cost is Tk. 150,000
- Repair & Maintenance Expense is Tk. 50,000
- Utility Expense is Tk 100,000, where Electricity Cost is Tk 500,000, Steam Tk. 200,000, Water Cost is Tk. 100,000, Chiller Cost Tk. 100,000, Compressed Air Cost is Tk. 100,000.
- Total Number of Machine is 150
- Hourly Production Capacity of Each Machine 30
- The total Working hour is 8 hours per day
- The number of working days in a month is 26 Days.
Total Cost = 20,000,000 + 100,000 + 50,000 + 200,000 + 150,000 + 50,000 +1,000,000 = 21,550,000
Total Production = 150 * 30 * 8 * 26 = 936,000
Cost of Garments Making Per Piece of Garments = (21,550,000/936,000) = Tk. 23.02 (Piece)
After reading this hopefully you understand how to calculate garments cost of making. If you have any confusion then please let me know, I will try to clarify further.
Note: All these costing information is arbitrarily taken, so these values are not actual costing value.