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Costing of apparel

Labour Costing


Direct Labour cost

The direct labour cost will be the second

largest element of cost, upto 30% of the

garment cost.

The direct labour cost is based on the

remuneration paid to those employees who

make the garment ----cutters, machinists,
pressers etc.

Direct Labour cost

There are two options

1.Time based wages rates

(Hours worked X Wages rate per hour)
2.Piece rates
(Pieces produced X Rate per piece)


Setting the rates

Wage rates----The actual setting of the wages

rates relates largely to negotiation between

management & employees representatives,
like trade unions.
Or Minimum wage rates for those engaged in

the needle trades set by the wages council &

these can be enforced by law for those aged
over 21.
Or Government fixed minimum wages depend
on the work place or cities.

Setting the rates-Piece

Piece rates can be difficult to set & will often

involve work study technician to measure the

time taken to perform an operation.
This system of remuneration used for sewing

operation in the production lines of clothing



Problems with piece rates as a

methods of remunerations
1. Slow workers may not earn much or have to

have their earnings made upto a minimum level.

2. Fast workers might achieve a certain level of

earnings & then just idle around.

3. In order to increase performance operators

might do shoddy work making for a lot of rejects.

4. There needs to be a system of accounting for

the pieces done by each operators.


Overtime rates
There employees work beyond agreed hours ,

say into the evening or at the weekends, this

is know as over time.
The overtime hours are usually paid at
enhanced rates of pay.
This normally done by increasing the overtime
hours worked so that each hour worked is
worth 1.5 hours or perhaps 2 hours.


The normal working week for a factory is 8hrs X 6days

Overtime is usually paid on the basis of overtime hour
being worth 1.5 hours ,
The wage rate for cutters is Rs20 per hour.
Person x is has worked a total of 53hours
Normal hours 48hrs @ Rs 20-----Rs960/------------------------Overtime hours 5 hrs
Enhanced to 7.5hrs (1.5times) @ Rs 20---Rs150/------------------------------------------------------------------GROSS PAY ------Rs 1110/- per week

Productivity Bonus
In order to promote productivity in the factory,

management might introduce a productivity bonus

This will usually have to be done through negotiation

with the employees or their trade union representatives.

There are a wide variety of such schemes, out of them

have a work study basis in terms of measuring the

productivity of all activities.
One system is to give employees bonus when certain

level of productivity achieved .


The labour hours that relates to specific jobs to be recorded

against the jobs settings,

the jobs cost can be calculated.
1 person 2hours to lay up & cutt.
4 machinists 2 hours to sew the garment
1 presser 2 hours to press the garment
Wage rates Cutter Rs 20 per hour , machinists Rs 14 / hrs,

presser Rs 16 per hour

Cutting 1 x 2hrs @Rs 20 ---Rs 40/Sewing 4 x 2hrs x Rs14---Rs 112/Pressing 1 x 2hrs x Rs16---Rs32/----------------------------------------Direct labour cost ----Rs 184 /CAP


Cost centers
Design room
Pattern cutting
Cutting room
Sewing rooms
Pressing room
Factory personnel department
Warehouse & stores



Labor costing
Two aspects of the role of labor costing.
Budgeting for production

Labor for individual styles.



Budgeting for production

The basis of labor costing is time ,
Labor cost both direct & indirect must be

budgeted for a firm to examine its financial

commitments & evaluate its capacity to
produce a product.
Direct labor includes all the factory employees

that are directly involved with the cutting,

sewing ,finishing & pressing of styles .


Total direct labor cost is determined by the following

=Number of operators X Hours per week X weeks per

year X Average hourly earnings

(weekly wages = 8hours shift per day X 6working days in week= 48hrs)

Total direct labor cost represents a firms financial

commitment to employing a predetermined number of

operators for a specific period of time.
Total direct labor cost are used to establish budgets,
schedule work, & hire employees.
Direct labor cost consists of standard labor costs &
excess labor costs.
Total direct labor cost =standard labor cost + excess
labor cost.

Total direct labor cost

Total annual direct labor cost is determined

by the following
=Number of operators X Hours per week X
weeks per year X Average hourly earnings
A. Number of operators --150
B. Hours per week48hrs
C. weeks per year 48 weeks
D. Average hourly earnings Rs 20
E. Total annual direct labor = AxBxCxD
i.e 150x 48x 48x20 =Rs69,12,000/CAP


Standard labor cost

Standard labor cost is compensation for

producing the firms product line. It is earned

money or piece rate earnings.
Standard labor cost = % plant efficiency X

Number of work hours X weighted average

base rate



Standard labor cost

Standard labor cost = % plant efficiency X

Number of work hours (no of operator x hours per week x

week per year)X weighted average base rate
Standard labor cost
Percentage plant efficiency 90%
weighted average base rate per hour---Rs 18
Total annual standard labor=90% x 345600

x18 =Rs5598720.



Excess labor cost

Excess cost % = Direct labor standard lobor

standard labor

= 69,12,000-55,98,720 = 23%



Excess labor cost

Excess labor cost is compensation for time

spent on the job not producing a product.

It is difference between the total earned &
the total paid to direct employees.
Excess labor = Direct labor standard labor
Excess labor may be the result of machine

downtime, attending meetings, being out of

garments to work on , or taking inventory
Excesses can vary a great deal from year to
year & must be budgeted as close as possible.


Base rate

A base rate (BR) is an established amount

compensation for one hour of work.

Firms may use one flat base rate for all
operators or a different rate for each skill
For Budget purposes , a weighted average
provides sufficient accuracy.
Weighted average base rate per hour = Total

amount per hour / total number of operators.



Labor Costing for individual styles

Labor Costing for individual styles begins

with a breakdown.
A breakdown is a complete sequential list of
all operations involved in assembly a style.
The style can be broken into component parts
& subtotaled, or the production
standards(SAMs) for each operation can be
added together for the total garment.
Production time can be converted to cost in
rupee by determine the rupee value of each
minute .



Labor Costing for individual styles

Example :-standard rate is Rs20/hr, each minute of

actual production is worth Rs20/60minute =Rs 0.33

per minute
A garment that requires 30minutes of production
for all operations has a Rs0.33 per minute x 30
minute =Rs 9.90 direct labor cost.
This example assumes that every operation is paid
the same rate.
In reality some operation require more skill &
attention by the operator, firms may use variable
base rates to compensate operators for different
skill levels.