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Product Costing Method

The document outlines a method for product costing using standard minutes (SMV) to calculate production costs. It details the necessary data for calculating productivity, minute value, and overall product costs, providing examples for clarity. The final costing includes various components such as manufacturing costs, material costs, and profit margins, leading to an estimated FOB per piece and break-even efficiency calculations.

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khuram gill
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14 views2 pages

Product Costing Method

The document outlines a method for product costing using standard minutes (SMV) to calculate production costs. It details the necessary data for calculating productivity, minute value, and overall product costs, providing examples for clarity. The final costing includes various components such as manufacturing costs, material costs, and profit margins, leading to an estimated FOB per piece and break-even efficiency calculations.

Uploaded by

khuram gill
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Method of Product Costing

Among the most secure ways of determining the cost of production for a certain style,
is to make a calculation of the work content in terms of standard minutes (SMV).
Referring to the SMV, and by knowing the real productivity figures, the actual cost for a
Minute would be calculated.

Calculating of Productivity/Efficiency

Following data is needed for calculating the productivity.

 Number of garments (quality approved) produced for a period of time.


 SMV value for each style.
 Direct workers in used.
 Total worked minutes for the above period.

Example

A production line consisting of 100 workers are working in 9 hours per day,
The out put is 2400 Pieces.
The SMV is 12.50 minutes.

The actual productivity is: (Earn Minutes / Available Minutes) %

(2400 unit x 14.00) / (100 Workers x 540 minutes) % = 62%

Calculating of Minute Value

Following data is needed for calculating the Cost of Minute.

 Number of workers
 Worked minutes per day.
 Absenteeism %.
 Actual productivity / Plan Efficiency

Example:

Number of works employed = 100 (Direct in Production)

Worked Minutes per day = 540 min / day

Absenteeism = 5%

Actual Productivity = 62% (Recorded)

Number of working days per Month = 26

Capacity Calculation Method

No: of workers x Worked min x Present % x Plan Efficiency x Worked day per Month

100 x 540 x 95% x 62% x 26 = 826,956 Min

Example
Average Cost per Month = 3,500,000 (Recorded)

The Cost of Minute would be = 3,500,000 / 826,956 Min

= PK Rs: 04.23

= US $: 0.051

How to Cost the Product

Example:

Total SMV of the Garment = 14.00 min.

Cost per minute (As Calculated) = 0.051 $

Cost of Manufacturing = (14.00 x 0.051)


= 0.71 US $

Cost of Fabric Meter = Rs. 200.00

Material Consumption / Unit = 1.20 Meter

Material Cost / Unit = (200 x 1.20)


= Rs. 240.00
= 2.90 $

Cost of Accessories Required = 1.15 $

Cost of Printing / Embroidery = 0.12 $

Cost of Washing / Processing = 0.25 $

ESTIMATED COST PER PIECE = (0.71+2.90+1.15+0.12+0.25)


= 5.13 US$

3.0% EXTRA CUTTING

4.0% COMMISION

ACTUAL FOB / PIECE = 5.50 US$

PROFIT MARGIN = 10%

QUOTED FOB / PIECE = 6.11 US$

PROFIT / LOSS = 0.61 US$

Break Even Efficiency = (Total Minutes Required/Total Minutes Available) %

Total Minutes Required = (3,500,000 / (0.61x83.00) x 14.00)


Total Minutes Available = (100 x 540 x 26)

= 69% Rizwan

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