National Clothesline

How much does it cost to produce a laundered shirt? If you are looking for a simple answer you probably won’t find the right answer.

The reality is that many factors affect the cost to produce a laundered shirt. Some costs are controlled by inside factors, like the rate of production, while others are controlled by factors like prevailing wages and rents in the region.

How much of an impact can these outside factors have on the total cost to produce? We can build three cost models to demonstrate the impact higher wages and rents have on the total cost to produce a laundered shirt.

The three most significant variables that impact the total cost to produce a laundered shirt are rate of production, prevailing wages in the region and rent.

In these models we will assume the same level of productivity across the three models so we can focus on the impact prevailing wages and rent in the region play in the total cost to produce.

The first cost model will reflect cost to produce in a plant with below average wages and rent. Prevailing wages in the first model assume employees earning an hourly wage of $7 per hour and annual rent of $12 per square foot per year.

The second model reflects cost to produce in the mid-range. The second model assumes prevailing wages of $8.50 per hour and annual rent of $24 per square foot per year.

The third model reflects cost to produce in areas with higher wages and rent. This model assumes prevailing wages of $10 per hour and annual rent of $36 per square foot per year.

Production labor cost was based on productivity of 20 ppoh (pieces per operator hour) for shirt production. It is equivalent to 320 shirts per eight-hour shift with one presser and one support person.

This rate of production is based on average production measured over the long term. Rates of production when the supervisor is standing there tapping his foot with a stopwatch in hand are extremely unlikely to reflect anything close to actual long term production rates. Shirt production includes sorting, washing, spotting, starching, shaking, pressing, touchup, button replacement, inspection, assembly and bagging.

Retail labor was based on average productivity of 20 ppoh. Retail labor includes incoming customer service, tagging, racking and outgoing customer service. At this rate of productivity in a store open 70 hours per week you would have one counter person on duty producing an average of $4,900 in sales per week with average revenue of $3.50 per piece.

Supervisory labor was based on an average of 3.3 percent of sales. Stores with higher labor and rent costs were assumed to have higher average revenue per piece.

Vacation/Holiday/Overtime Allowance was based on six paid holidays per year and one week paid vacation. Minimal allowances for employee training, lost time for equipment malfunctions and an overtime allowance have also been factored in.

Employer FICA/Medi-care/Workers Compensation/
Unemployment allowances were based on 7.65 percent for FICA/Medicare costs and 10 percent for workers’ compen-sation/unemployment insurance costs. Workers’ compensation and unemployment rates vary substantially from state to state and business to business based on local laws and business safety and employment history.

Utility costs have risen substantially in recent months. Estimated utility costs were based on natural gas costs of $1.33 per ccf. Utility cost can vary substantially from region to region based on the type of energy you use and availability in your area.

Supply costs will vary based on packaging standards and chemical choices.

Repair and Maintenance costs were based on 2.5% of sales and average revenue per piece of $3.50.

Miscellaneous costs include claims, credit card processing fees, advertising costs, bank services charges, bad check fees, etc.

Rent was based on operating at 80 percent of capacity with a maximum capacity of 100 pieces per square foot per year. In a 2,000 square foot package plant, this would be equivalent to producing 166,400 pieces per year and gross sales of $582,000 per year with average revenue of $3.50 per piece.

With volume at this level, the plant is likely to be operating at over 100 percent capacity for 25 percent of the year. If piece counts grow beyond this level, it is likely the business will need to expand. Expansion would lead to increased cost per unit until pieces produced per foot reach the same level in the expanded space.

Even though rent is likely a fixed cost, the size of the facility will place limits on the ability to produce. In this case, we have factored in rent at the near minimum cost per piece that we are likely able to achieve over the long term within the current limitations of the facility.

Depreciation costs were based on total life-cycle costs allocated per expected life-cycle of production. A single buck unit including a touchup press and washing machine can easily cost $50,000 or more.

Trucking, sales tax, personal property tax, installation cost and finance costs could easily add another $30,000 to $50,000 for a total lifetime cost of $80,000.

If the unit is operated at 85 percent capacity for 12 years, it will process one million shirts during the life-cycle. This would make the per-unit cost $.08.

The total cost to produce in the model with low wage and rent costs was $1.85 while the cost to produce in the model with high wage and rent costs was $2.57. In this case the total cost to produce in the location with higher wages and rent was nearly 40 percent more than the one in with low wages and rent.

These cost models clearly demonstrate that locations with higher wages and rents have significantly higher costs and those increased costs will have a significant impact on the total cost to produce.