Calculation of Standard Hours Earned, Operator Efficiency, and Labour Cost

Operator Efficiency, Standard Hours Earned, and Labour Cost is the most used term in the garments manufacturing industry.

Let’s explain the term with a real-time example. Assume SAM of an operation is 0.5, and an operator produce this garments part of 900 pieces in 9 hours. Now let's see the calculation in the following.

Standard Hours Earned

The formula for Standard Hours Earned (SAH) = (SAM of the Operation × Production Pieces/60)
In this case, Operator SAH  Earned = (0.5 ×900)/60 = 7.5

Operator Efficiency
The formula for  Operator Efficiency (On-standard) = [(Operator SAH Earned  × 100) / Total Hours Worked)]%
In this case, Operator Efficiency = [(7.5 × 100)/9]% = 83.33% with the base rate of $0.75 per hour.

Labour Cost per Piece

To determine the Labour Cost per Piece, first determine the Operator Earnings. If the employees are piece-rate then Then Operator Earnings = $0.75 × 7.5 = $5.63

For the salaried employee, the operator will be paid for the minimum shift hours and overtime. To calculate daily salary and overtime payment, divide the monthly salary by the number of working days in a month.

Now Labour Cost per Piece = Total Earning by Operator / Number of pieces produced

= $5.63/900
=$ 0.00626

Another method of calculating Labour Cost per Piece = Labor Cost Per Minute X Garment SAM
We Know, Labor Cost Per Minute = Daily wages /Total SAM produced in a day.

From the payroll section, we can collect the daily wages and from production pieces and from the garments SAM, we can know the Total SAM produced in a day.

Then easily can calculate the Labour Cost per Piece