CM and CPM Calculation

 CM Calculation

What do I mean by CM? CM means the cost of making any product or service. It is one of the most used words in the garments industry. It is calculated from time to time for a product thus manufacturer can calculate garments profit. It’s important to maintain CM so that manufacturers could understand costs in increasing/ decreasing and it helps to make any decision for garments policymakers.

We will discuss here two common types of methods to calculate CM

• Casual methods to calculate CM
• An effective way to calculate CM

If you want to calculate garment costing you need to know the following things given below.

1. Total Cost (TC)= Fixed Cost (FC)+ Variable Cost (VC)
2. Production Capacity of machine /hour
3. Total working hours per day
4. Number of working days in each month

Fixed Cost: Also known as indirect costs, these are not dependent on the level of goods or services produced by the industry but remember one thing – if the number of production increases, your per unit fixed costs will be reduced, and if the number production decreased, your per unit fixed costs will be increased respectively. This type of cost is fixed in nature. Some examples of fixed costs are; salaries and wages, interest expense of bank loan (if the company has taken from the bank), rental expense of your factory building (if the company rents a building), depreciation expense of your fixed assets, etc.

Variable Cost: Variable cost is based on the amount of output produced. Remember one thing, per unit variable cost is fixed. Examples of variable costs are utility costs, expenditures, transportation, repair, maintenance costs, etc. Utility cost (electricity, water, steam, air costs) is the most conclusive variable cost in the garments industry.

Casual Methods to calculate CM

Formula: Cost of making= Monthly total cost of garments operation/ Total garments produced in each month

Let’s see an example:

Suppose,

Fixed cost=400000

Variable cost=1500000

Total Cost= FC+ VC= 1500000+400000=1900000tk

Total Production=48000 pcs

CM= 1200000/48000=39.58tk per pcs

 

An effective way to calculate CM

Formula = Monthly total costs/ Total produce minutes per month

Let’s see about the formula for calculating the produce min

1. Produce min = Available min* company average efficiency
2. Produce min = Total Production* Average SAM

Suppose,

Total Production = 17160 pcs

Average SAM =25

So, Produce min =17160*25 =429000 min

 

Calculation of cost per min (CPM):

Fixed Cost =400000/429000= 0.93

Variable cost =1500000/429000=3.49

Total Cost =0.93+3.49=4.42 tk. / min =0.053$/min

 

So, cost of making (CM) =0.05*20*12 =12.72$ / dozen (here, SMV=20)