How To Calculate Product CM at The Time of Order Booking?
The fashion industry has become more competitive than ever, and many garment manufacturers are finding it hard to make a decent profit. So to stay ahead of the competition, garment manufacturers need to have an efficient manufacturing process. However, to do this, they need to have a clear idea of the cost involved in the manufacturing process, helping them in planning the budget and product cost correctly.
To find the right product cost which can be backed with data to convince the client to pay such a huge amount, manufacturers need to find the exact value of garments' cost of making (CM). The garments' CM depends on various production processes, elements, and expenses. Determining production costs can be challenging; however, it is crucial for setting the prices of finished products. The garment industry uses several techniques for determining the merits of apparel by considering various factors, such as fabric and trim, testing, logistics, and profit margins.
Understanding the garments' CM
Estimating the garments' CM helps garment manufacturers set and control the prices of apparel. The process of finding the right price for garments involves estimating and determining total production costs.
Various aspects help determine the CM, such as raw materials, production processes, trims, logistics, operating expenses, overhead expenses, and workforce. Thus, it can be said that garment prices depend on total production and marketing costs, including raw materials, operating costs, and profit margins.
Prerequisites for calculating the garments' CM
Before one calculates the accurate value of the garments' CM, one needs to find the following values:
- Total Cost (TC) = Variable Cost + Fixed Cost
- Hourly Production Capacity of the Machine
- Total Effective Working Hours Per Day
- Total Number of Days Operations in a month
To get the value of each of these parameters, garment manufacturers can take help from the following information.
Fixed cost of garments making
Fixed costs in garment manufacturing are, as the name suggests, fixed in nature. The only way manufacturers can reduce the per unit fixed cost is by increasing the number of units they produce. Some examples of fixed costs include wages, employees' salaries, interests given to banks, rental expenses, and depreciation expenses incurred by fixed assets of manufacturers.
Variable cost of garments making
Variable cost changes depending on the number of units produced. For instance, the utility costs, such as water, electricity, steam, and air can change according to the production cycle. Furthermore, one can also face variable costs such as maintenance, transportation, and repair costs during production. Hence, one should keep an eye on all these costs to find the right value for the garments' CM.
Hourly total production capacity of garments machinery
To find the hourly total production capacity, one needs to find the total number of machines involved in the production process and their individual production capacity. Now, one should multiply the hourly capacity of each machine by the total number of machines to get the exact value.
Daily production capacity of garments
For calculating the daily production capacity of the garment, one needs to multiply the hourly effective production capacity with the total working hours per day.
Monthly production capacity of garments
The monthly production capacity of garments can be calculated by multiplying the daily production capacity of a garment factory by the total working days per month.
Ways to find the cost of utility to calculate the variable cost
Finding the exact value of variable cost for the garments' CM is important. And to do that, one needs to find the cost of utilities required in the production process, such as:
Electricity costs
Electricity cost can be calculated by finding the total KW consumed in the production factory and then multiplying it by the price per KW in that region. The cost of electricity will be comparatively higher for fuel generators than the gas generator.
Water costs
The water costs in a garment factory can be divided into two parts: the cost of collecting water and the filtration cost. To get the final water costs, one has to add both these costs.
Steam costs
To get the steam costs, one must first find the value of the total steam consumption per machine per hour. After getting this value, one has to multiply it by the total number of machines used in the garment factory to get the steam costs.
Compressed air costs/air costs
Air costs can be calculated by finding the compressed air cost per cubic meter and then multiplying it by the total consumption of the factory.
How to estimate garment production costs?
Production expenses include not only labor costs but also factory and machinery expenses.
Factory expenses are those incurred for the smooth daily operations of the production units, such as rent, utilities, and taxes. As for labor charges, these include staff wages, entertainment costs, and the like. For the machinery and equipment, costs depend on the production process, order quantity, availability, workforce, and production capacity.
Manufacturers consider the following factors to estimate the total CM and per piece CM.
1. The workforce in each production line
2. The time it takes to complete an item
3. The total output of a production line and its efficiency
4. Average operating costs
Most garment manufacturers use the following formula to determine the CM during the manufacturing process.
Cost of Making (CM) = (Total Manpower of the Production Line x Total Time Output Per Day/Total Time Output to Complete an Item) x Efficiency
For example, if a production line has 40 workers taking 45 minutes to complete an item, working 600 minutes a day to execute orders at 50% efficiency, with an average per day operating cost of Rs. 500. The total production cost would be:
Cost of Making (CM) = {(40 * 600) / 45 } * 50% = 266.
You can get each piece's CM by dividing the average per day operating cost by the total CM.
CM per piece = Average Per Day Operating Cost/CM
So, in the above case, the CM per piece = Rs. 500/266 = Rs. 1.87.
Bottomline
The cost of making is vital in garment production. It lets manufacturers calculate how much they will need to spend on each aspect and set the selling prices for a profitable business. Various factors determine production costs, including the fabric or material used, the order quantity, production processes, labeling, packaging, shipping, logistics, and human resources. Manufacturers also need to consider various other aspects when estimating production costs. Production lines and their efficiencies, the time it takes to complete each item, and the average operating costs are a few such essential factors that help determine the making costs accurately.
Everyone in the fashion industry wants to make profits; garment manufacturers are not the only ones. Someone who is a cloth retailer losses a lot of money every year due to delayed delivery of their stocks. However, they can make their product delivery processes much smoother by connecting with Fashinza. Fashinza can help them in getting their favorite clothes on time.
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