What is Cost Per Minute (CPM) in Garment Costing?
In the garment industry, Cost Per Minute (CPM) refers to the cost associated with one minute of production time. This is a significant parameter while determining the garment cost. It assists in determining the labor cost involved in the production of a garment.
As most of the costing methods are performed based on experience and previous knowledge on the processes, the scientific approach towards the costing process is limited. It is also due to the different ways employed for calculating the costing of various activities. However scientific methods of costing are available and one such most accurate scientific method used in the garment industry is the cost estimation of the process with respect to the time used, popularly called as estimation of cost per minute (CPM). CPM helps manufacturers determine how much it costs to operate a sewing line or production floor per minute.
———————-……——————-Total cost incurred on labor
Cost per minute (CPM) = ————————————————————————
——————-…..————-Total available working minutes x No. of labor
This method is preferred over other methods due to the following advantages:
- It is one of the most accurate way of cost calculation as it calculates the expenses with respect to time
- It is the most scientific way of calculating the expense of a garment manufacturing firm
- It remains constant irrespective of the person who performs the costing as it is calculated against the minute
- This method includes all types of overheads, which is not covered in the CMT (cut make trim, meaning that conversion) cost. The CMT cost represents only 60% of the CPM cost in practical.
Factors Influencing the Cost Per Minute:
a) Product style complication: Based on the style complication, the cost per minute increases accordingly. The garments generally fall on three categories namely basic, semi-fashion and fashion garments. Based on these criticalities, the cost per minute will vary. For the garments with higher standard minute, the cost per minute will be higher and vice versa.
b) Product volume: It is another serious aspect which affects the cost per minute in a significant way. Even though the style of the garment is more complicated, the higher volume of the order reduces the cost per minute. This is due to the reason that, the longer duration running of the order will increase the efficiency.
c) Worker salary: Based on the order complexity, the styles may require more number of direct and indirect labors and so increases cost per minute. Hence the salary expense will proportionally increase with respect to the garment style.
d) Factory location: The factory location decides the transportation requirements for material, labor and other requirements. Sometimes, companies located far away may create a situation to provide accommodation for the labors. In that case, the accommodation and food expenses of workers and staffs will increase the cost per minute.
The Cost to be Included in the Cost Per Minute:
1. Direct salary: The persons who are all working inside the factory in the direct product manufacturing including their provident fund and employer service insurance. However, in an apparel industry, the workers involved from the receipt of the fabric to dispatch of the shipment package are only considered.
2. Indirect salary: The expenses of indirect labor (staff) is very similar to direct labor. It includes salary and all contributions for staff from the receipt of fabric to the dispatch. In this section, the marketing and merchandising department staff salary is not included as they are centralized for all the orders.
3. Expenses: All the general expenses like power expenses, diesel expenses for power generators, water consumption expenses and other common expenses are added into the calculations.
4. Transportation: The cost spent on the transportation for the employees and other staff members from their home to factory and from factory to home is computed. Similarly, the other major cost is material transport cost. Here, the fabric transportation cost from the manufacturer and the movement of finished goods from the factory to the port should not be included. However, the transportation cost must be included after the receipt of the fabric till the goods reach warehouse.
5. Depreciation: The depreciation cost is included for the machines, furniture, building and for the electrical and electronic instruments. The depreciation cost can be obtained in the following method. Let us think of a sewing machine, which costs 22,000 Taka and assume the life of this new machine is approximately 15 years. Then the cost of the single machine depreciation is estimated by dividing the total cost by number of days in a year. This will give a depreciation cost of that machine day. Similarly, all machine costs in the factory are estimated and total depreciation cost per day can be measured.
6. Maintenance: Similar to the depreciation cost, the maintenance cost is estimated for machinery, electrical and electronic goods, furniture, building and housekeeping process. The maintenance cost increases with the number of usage years or when time increases. The machine, electronic and electrical goods maintenance cost is generally higher than the furniture, building. The depreciation of furniture and building is noted very less than the machine. Similar to the depreciation, based on the capital investments, number of items and its usage years, the maintenance cost per day can be calculated.
7. Welfare expense: Welfare cost is generally associated with workers welfare, staff welfare and others welfare. The manufacturer can list all the welfare activities associated with the different sections under their subheads and can arrive at total welfare cost of the factory per month.
8. Interest on the working capital: The interest on the working capital is majorly based on the value of work in progress (inventory value or quantity) in the different sections of the manufacturing firm. By adding all the sections inventory level in number of days, the total inventory in number of days for the factory can be obtained. To estimate the factory’s estimated inventory level, the total number of inventory level days must be multiplied with the average daily production per day. This will give the total estimated inventory level of the factory in terms of number of products. From the yearly working capital interest, the daily interest on working capital can be estimated in terms of rupees if the product cost is known.
9. Miscellaneous: Other general expenses which are not covered during normal costing like consumables, stationeries, accommodation cost, etc. will be considered in the cost estimation process.
The following is the simple example for the cost per minute calculations:
To determine the labor cost of a new style or order, its SAM value is estimated and then multiplied to cost per minute and efficiency to get the actual labor cost.
Example 1: A garment unit has 500 direct sewing operators and helpers. The cost to the company for the 500 operators is 3,900,000 Taka. The company works for 8 hours per day for 26 days in a month.
Solution:
Therefore,
Total working minutes per operator = 12,480 minutes.
Cost per minute = 3,900,000/(12,480 × 500) = 0.625 Taka per minute.
Example 2:
A manufacturing company incurred a total cost of 3,45,000 Taka for day as a production expense. For that the company produced 22,000 knitted women’s top with complicated style and the standard minutes of the garment noted is 12. Calculate the cost per minute for the day represented.
Solution:
The total minutes produced = Number of garments × SMV of the garment = 22,000 × 12 = 2,64,000 minutes
……………………………Total cost for the day
Cost per minute = ———————————————
………………………Produced minutes for the day
……………………………………………………………….3,45,000
Hence the cost per minute for the day = ——————————————
……………………………………………………….2,64,000 minutes/day
= 1.30 Taka /min
……………..2,875 USD
Or = —————————————— [1 USD = 120 Taka]
…….2,64,000 minutes/day
= 0.01089 USD/min
References:
- Handbook of Textile and Apparel Costing by Rathinamoorthy, Surjit and Vishnu Vardhini
- Apparel Merchandising by R. Rathinamoorthy and R. Surjit
- Garments Merchandising by M.A. Kashem
- Practice of Garments Merchandising and Management by Engr. Md. Faruq Hosen
