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The basis of production standards and labor costing is time. Time, like any other resource, must be measured before it can be controlled, and controlled before it can be managed. A production standard reflects the normal tune re ed to complete one operation or cycle using a specified method that will produce ffic expected quality. Production standards are established as a measure of productivity of operators under normal conditions. Production standards help to develop operator consistency and identify the most cost-effective production methods. Management also uses production standards to estimate costs, develop incentive programs, spot production problems, improve production methods, and determine department and plant production capacity.
Production standards used for labor costing are based on work measurement techniques such as predetermined time, standard data, and time studies. The time values specified in the production standards are usually expressed in Standard Allowed Minutes (SAM), which may be translated into Standard Allowed Hour(SAH). A breakdown is a complete sequential list of all operations involved in assembling a style. A single production operation, such as attaching a pocket, would be called a proem or cycle. The proem of attaching a simple patch pocket can be broken down into minor elements or tasks such as (1) pick up and fold pocket, (2) align pocket on shirt front, (3) position to needle (4) stitch pocket, and (5) dispose and stack. A specific method is specified for performing each element.
Each cycle is listed in the order in which it will be performed along with the production standard or SAMs for each operation. Each cycle is costed separately and converted to dollars per unit. In a piecework plant, a production standard is converted to dollars per unit based on the rate for a particular skill level and/or hourly wage. In a plant that pays hourly wage, production may be based on production standards representing what an operator is expected to complete in a specified time period.
In costing direct labor, the production standard specifies the SAMs to complete one cycle. To determine the direct labor cost, the volume that can be produced in I hour is multiplied by the base rate and divided by the volume produced in the hour. For example, a production standard for setting labels is 0.45 SAM. If it takes 0.45 minutes to set one label, then a normal operator should be able to set 133 labels per hour (60 minutes/0.45 per minute). If the base rate is $4.50 per hour, then it would cost $0.03 to set one label ($4.50/133). Each operation is converted to dollars per item. In addition to this cost, a percentage must be added to compensate for fringe benefits such as insurance, sick leave, and vacations.
Machine time is often calculated separately from handling time. The handling procedures will be nearly the same each time an operation is done. However, the amount of time required to complete a line of stitching varies with (1) the length of the scam, (2) the number of stitches per inch, and (3) the speed of the machine in revolutions per minute (rpm). The stitching time may be calculated as a separate element of the cycle by means of a special formula that takes into account the time variations that may occur with the stitching process.
seam length x stitches per inch
SAMs for stitching = -----------------------------------------
rpm of the machine
Recosting
is done after garments are put in the line and the production patterns are developed. At this point, changes are made to economize on the fabric and sewing time. In some cases the pattern maker may actually recommend an increase in costs in order to simplify production or improve the quality level. For example, on some plaid fabrics, the pattern room may determine that it is much easier to match the plaids with a 1-inch scam allowance instead of the usual 3/8 inch or 1/2 inch. Recosting provides the opportunity to pick up any costs that may have been missed during cost estimating such as an overlooked label or an extra button.
Actual Costs
Actual costs are determined by the collection of data from production. Once a style reaches the seiaing floor, an engineer may find some rates are too tight and that more time is needed to complete specific procedures. If a rate adjustment is needed, it will inevitably affect costs. Actual costs need to be monitored through- out production and if a style exceeds estimated (scheduled) costs it may need to be revised or pulled from the line.
Budgets reflect comprehensive financial plans that establish the expected route for achieving the financial and operational goals of the firm. They are prepared for profit and cost centers. Budgets are based on sales projections, cost containment goals, and profit objectives. (Budgets were also discussed in Chapter 3.) Analyzing the effect of cost behavior on revenue can be valuable in the planning add control of a firm's activities and profit potential. The firm must manage product output to meet the profit objectives expressed in the budget.
Performance reports prepared by cost accounting compare budgeted and actual costs for materials, labor, overhead, or volume of production in order to determine cost variances. Cost variance is the difference between budgeted costs and actual costs. Costs are monitored and controlled in an, effort to maintain favorable variances. If the variance is negative, meaning that actual costs exceed budgeted costs, action may be taken to reduce the variance. This may involve changing a esign, revising production procedures, or stopping production of a style. Exctlive variance can result in production bottlenecks, failure to meet deadlines, loss of profits, and eventually business failure.
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