# How to Calculate Labour Cost in Garment Industry

## How to Calculate Labour Cost in Garment Industry

Shubham Anil Jain
Sr. Consultant
Cent Edge Solutions LLP, Bangalore, India
Email: shubhamajain125@gmail.com

Introduction:
In the globe of manufacturing, labor costs plays a very vital role for company, it is particularly being calculated by means of time study data which is also known as work measurement data. With the help of time study, one can easily calculate standard time (SAM) for many of the activities which are done as part of the manufacturing sequence. In garment manufacturing, this process or sequence is known called cut & sew operations.

With the help of work measurement data, it is possible to calculate direct labor cost of garment manufacturing. Various other cost factors like overheads and material costs are estimated separately. So, in this article, we will explain on how to calculate labor costs in garment industry with the help of work measurement data.

How to Calculate Labour Cost in Garment Industry
So, following are the simple steps on how to calculate the labour cost in garment industry:

Step 1: Calculating Garment SAM
So, the first step start with calculating the SAM. So, basically there are two important methods to calculate SAM, i.e. Standard Allowed Minute; one can do it by using Time Study and the another option is by using synthetic data. So, simply the standard formula for calculating SAM is given below:

SAM = basic time + bundle allowances + machine & personal allowances

Basically, both the methods tends to follow the same formula, but the only difference here is on how the Basic Time value gets recorded. When it comes to the Time Study method, basic time is simply being recorded manually with the help of stopwatch on at least 5 different cycles and then the average time is calculated as the basic time value.

When it is about the synthetic data method, one can simply list down all the motions which are been done by a worker at all the  time of shift then refer to either TMU (Time Measuring Unit), GSD or SPD (Sewing Performance Data) for the corresponding values of these particular motions relying on the table used. Here, the value will be considered as the Basic Time value for calculating SAM in such method.

Step 2: Calculate Daily Labor Wages
So, when it comes to the daily labor wages, it probably may vary from one company to another but most of the time it is observed that, the minimum labor wage is being considered as the value for this. Here, you have to contact with your HR team or ask the local labor and employment government agency for the minimum labor wage.

Now, to estimate per minute labor cost, let’s say for example the daily labor wages is \$6. Calculated per minute labor cost is 6.0/480 = USD 0.0125 (wherein 480 is the calculation of number of minutes in the shift of an 8-hour)

Step 3: Calculate Line Efficiency
When it comes to the efficiency of the sewing line, if you already know the efficiency of the sewing lines, use those data directly. If in case you are not aware of this, use following formula to calculate it:

Line efficiency = Total units produced by the line x 100/total minutes of operators

Step 4: Labor Cost Per Garment Calculation
Now here, for example, let’s assume that there is one line running at 65% efficiency, daily labor wage is USD 0.00833 and product SAM is 22 minutes;

Labor cost per garment = (Garment SAM X Labor cost per minute) / Line Efficiency in %

Therefore, direct labor cost of the garment

= US\$ (22 X 0.0125)/65%
= US\$ 0.4230

So, this is how garment manufacturers calculate for garment labor costs. Even if you are only operating as a small factory that simply manufactures garments, same formula will be applied for calculating garment and apparel labor costs.

References:

1. Prasanta Sarkar, June 18, 2013, How to Find Labor Cost for Garment Manufacturing Using Work Measurement Data? https://www.onlineclothingstudy.com/2013/06/how-to-find-garment-labor-cost-using.html
2. How to Calculate Labour Costs in Apparel Production https://www.opencosting.com/pages/how-to-calculate-labour-costs-in-apparel-production
3. How To Solve For Garment Labor Costs https://intrepidsourcing.com/how-to-solve-for-garment-labor-costs/

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