How to Calculate Labor Cost

Direct Labor Cost

Important to calculate direct labor

cost:
Calculate direct labour cost per
hour
Calculate direct labour cost per
item


Direct Labour Cost per hour
Employee
Working hrs
Salary Pm
Pm
A( Skilled Tailor) 208
3100.00
B( Skilled Tailor) 208
3100.00
C( SS Tailor) 208
2500.00
D(Folder,Iron) 208
2900.00

832
11600.00

Labour Cost 11600/832 Rs 14/hour

Direct labor
Any work that alters the
composition,condition,conformation
or construction of a product
Any operation that advances a
product towards its ultimate
condition for sale thereby adding to
its value

Direct labour cost

Remuneration paid to employees
who make the garmentcutters,machinists,pressers etc.
2 options of remuneration:
Time based wages(Hrs worked* Wage
rate per hour)
Piece rates(Pieces produced*rate per
piece)

Piece Rates
Often difficult to set
Involve work study techniques to
measure time taken to perform an
operation.
Problems associated with Piece rate
systems

Who sets the rates?

Minimum wage laws
In India differ for every state

Minimum Wage rate--Delhi

Textile Industry including Hosiery
Handloom, Niwar, Lace, Thread Ball
Mfg. Name Label, Dyeing, printing of
Textile & readymade Garment.
Skilled ---------------248
Semi-Skilled------- 225
Unskilled----------- 203

Minimum Wage rate-Haryana

Ready made Garments:

Highly skilled -------192.23
Skilled B-------------- 187.23
Skilled A --------------182.23
Semi skilled B------- 177.23
Semi skilled A------- 172.23
Unskilled------------- 167.23

Minimum Wage rate-Gujarat

Manufacturing Readymade
Garments or its Accessories
& Tailoring Establishments
more than three workers:
Category V------ 163.9
Category IV ------166.1
Category III-------167.5
Category II-------- 169.7
Category I------- 171.7

Minimum Wage rate-Rajasthan

Tailoring work & Garments Industry:
Skilled 155
Semi-Skilled 145
Unskilled 135

Minimum Wage rate-Himachal

Establishments withmanufacturing
Process as defined in clause (K)
of section-2 of Factories Act, 1948:
Highly Skilled------- 144
Skilled---------------- 135.25
Semi-Skilled-------- 126.55
Un-Skilled----------- 120

Piece rate calculation

If operation A takes .75minutes and
the rate per SAM is Rs .042 and
operator produces 4850 pieces in a
week then the weekly earning of this
operator=Rs

Labor Costing-Budgeted
Basis for labor costing is time.
Labor costs-Direct & Indirect need to be
budgeted for a firm to examine its financial
commitments & evaluate its capacity to
produce a product.
Total DLC=No.Of Operators*hours /week*
weeks/year*avg hourly earnings.
This rep the firms financial commitment to
employing a pre determined no.of operators
for specific time period.

Labor Costing-Budgeted
Calculated to establish Budgets, schedule work and
hire employees.
DLC=Std LC+Excess LC
Std LC-Money earned to produce the product/piece
rate earnings.
Std LC=% Plant efficiency*No. Of work
hours*weighted average base rate.
Std LC is needed to determine the cost of producing
each style & excess cost of each style.
Based on plant efficiency and weighted average
base rate.

Labor Costing-Budgeted
Plant efficiency is Volume of production
relative to the input of work hours.Based on
operational history of plant.
Base rate is established compensation for one
hour of work.May vary for skilled operators.
Excess labor cost=Compensation for time
spent on the job but not producing a product.
It is the difference between total earned and
total paid to direct employees.

Labor Costing-Individual
Style
Begins with a breakdown of all operations
involved in assembling a style.
The style can be broken into component
parts and sub totaled or the production
standards for each operation can be added
together for the total garment.
Production standard reflects the normal
time required to complete one operation
using a specified method that will produce
expected quality.

Labor Costing- Individual

Style
Prodn standards are the basis of
establishing standard labor costs and
managing available production time.
Time values specified in production
standards are referred to as SAM/SAH.
Prodn time is converted into Re/$ by
determining the value of each minute.

Dependency of Direct Labor

Cost
Fashion vs Staple Merchandise
Marker Making costs affected by
Variations in width of piece goods
Fabric design

Spreading Costs

Type of Fabric spread

Length of spread
Consistency of fabric
Spreaders attention to fabric defects
Complexity of spread

Cutting Costs

Pattern Configuration
Die cutting requirements
Fabric type
Fabric design
Spread Height

Assembly/Bundling
Amount of SKUs involved
Bundle integration
Bundling specifications required

Sewing Operations

Size of sewing bundles

Size and color variations
Variations in fabrics
Utilisation of Equipment
Quality Specifications

Pros & Cons of Piece Rate

System
Advantages Labour can be hired on need basis
Avoids union activities
Can be fired if performance is not of
expected level
Mfger doesnt have to spend on
training

 Dis-advantages
Workers work at their own free will
Slow workers are not able to earn as much
Mfger might not find the best workers specially
during season
To earn more workers might produce inferior quality Every time a mfger hires, there needs to be price
negotiation.
Operators not responsible for upkeep of machines
and equipments
elaborate records need to be kept of pcs produced.

Working Hours & Overtime

Rates
Section 51-Weekly Hours
No adult worker shall be required or
allowed to work in a factory for more
than forty eight hours in any week.
Section 54-Daily hours
No adult worker will be required or
allowed to work in a factory for more
than nine hours in any day

 Section 59-Where a worker works in a

factory for more than nine hours a day
or for more than 48 hours a week, he
shall in respect of overtime work be
entitled to wages at the rate of twice his
ordinary rates of wages
Workers in a factory who are paid on
piece rate basis, the time rate shall be
deemed equivalent to the daily average
of their full time earnings for the days
on which they actually worked on the
same or identical job during the month
immediately preceding the calendar
month during which the overtime work

Cost Centers
Departments of the factory for which
costs can be identified.
Production Cost Centers
Service cost centers
Within service cost centers all costs
are overhead costs
Hence these costs have to be
allocated to the products.

Cost Centers-Advantages
The entire factory is divided into
smaller depts.
Each dept. hence is accountable
for cost control
Allows costs to be appropriately
distributed

 ABC mfging company has the

following estimates:
Production Cost Centers(PCC):
Cutting Sewing
Finish & pack
DL hrs
740
2000
760
O/H
-Indirect L
100 250
150
Others 80 150
120
Service Cost Centers(SCC):
HR Dept
Maintenance Dept
Indirect L 2500
2000
Others 300
700

 SCC are shared out to PCC on based

onFactory Personnel-in proportion of
estimated DL hrs.
Maintenance-half to sewing
room,remainder equally divided
between cutting and press rooms

Work centre rate

WORK CENTER COST FOR 100 FICILITY
Unit
1

Date

Std.Cost/Per
Hour

Cutting OT
Cutting
Cutting

B08

Wages+Incent
Total Cost
Total Cost

1/6/2007
1/6/2007

27.95
94.93

P/Hour
90 People

Embroidery OT
Embroidery

B08

Wages+Incent
Total Cost

1/6/2007
1/6/2007

31.72
42.27

P/Hour
P/Hour -P/Head

Finishing OT
Finishing

B08

Wages+Incent
Total Cost

1/6/2007
1/6/2007

31.5
79.71

P/Hour
P/Hour

Sewing OT

B08

Wages+Incent

1/6/2007

29.43

P/Hour

Total Cost

1/6/2007

56.69

P/Hour P/Machine

W/Center

Costing Comp. Description

Sewing

Remarks

Washing OT
Washing

B08

Wages+Incent
Total Cost

1/6/2007
1/6/2007

34.03
35.37

P/Hour
P/KG Hour

Dressing OT
Dressing

B08

Wages+Incent
Total Cost

1/6/2007
1/6/2007

27.79
68.8

P/Hour
P/KG Hour

W/Cente
r

BLR Units

Date
UNIT- 1

UNIT-4,
9 & 10

UNIT-6
&8

UNIT-7

UNIT 11 UNIT 12
UNIT 14 UNIT 16 UNIT17 UNIT19
Knit
Knit

Cutting
OT

1/6/2007

75.62

19.98

20.11

19.72

27.73

27.73

20.15

19.87

Cutting

1/6/2007

67.70

83.46

90.81

54.76

33.82

33.82

74.25

84.22

75.20

43.27

Embroide
ry OT
1/6/2007

20.00

20.00

36.74

Embroide
ry
1/6/2007

7.20

7.20

14.04

Finishing
OT
1/6/2007

19.64

19.77

19.80

19.71

35.22

35.22

19.72

17.76

53.04

Finishing 1/6/2007

63.66

48.00

52.92

56.40

41.31

41.31

58.77

33.95

55.67

55.57

Sewing
OT

1/6/2007

19.85

19.83

19.85

19.82

30.24

30.24

19.84

19.84

19.84

Sewing

1/6/2007

49.42

62.89

45.36

56.89

48.47

48.47

55.26

48.77

49.25

49.24

Washing
OT
Washing
Dry
Process
OT
Dry
Process

1/6/2007

19.14

1/6/2007

3.00

1/6/2007
1/6/2007

29.40