Standard Costs Formulas

 

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The following case study provides a work order cost analysis of the manufacture of a child's wagon. The assumptions used are 100 percent yield, zero scrap, 100 planned quantity, and noncrew labor.

The Open Work Order Report for this example includes the bill of materials and quantities required for a planned quantity of 100 "parent" wagons. The 8' x 4' aluminum sheet yields two 4' x 4' sheets after sheering.

Standard Material Costs

Standard material costs are shown below.

1 - 4' x 4' sheet = 0.75

2 - axles = 0.30

4 - wheels = 2.00

1 - handle = 0.75

  $3.80 per wagon

The following rules determine how standard and average unit costs are defaulted.

Expand/Collapse item  Standard Valuation

The standard cost from the Inventory file is used. If the standard cost is zero, the unit cost defaults to the last cost. If the last cost is zero, the unit cost defaults to the warehouse average cost. If the warehouse average cost is zero, the unit cost defaults to the item average cost.

 

Expand/Collapse item  Average Valuation

The warehouse average cost from the Inventory file is used. If the warehouse average cost is zero, the unit cost defaults to the item average cost. If the item average cost is zero, the unit cost defaults to the last cost. If the last cost is zero, the unit cost defaults to the standard cost.

 

The following formula can be used to calculate the standard material costs.

Standard Material Cost =
Planned Parent Qty x Unit Cost x Unit of Measure Conversion x Qty per Parent

Total Planned Material Costs        = $380.00

 

Expand/Collapse item  Standard Material Cost Calculation Example

 

Planned Parent
Quantity

Unit Cost

Unit of Measure Conversion

Quantity Per
Parent

Standard Material Cost

Sheets (4' x 4')

100

x 0.75

x 1

x 1

= 75.00

Wheels

100

x 0.50

x 1

x 4

= 200.00

Axles

100

x 0.15

x 1

x 2

= 30.00

Handles

100

x 0.75

x 1

x 1

= 75.00

 

 

For more information, see:

Fixed and Variable Overhead for Material Issues Formulas

Standard Labor Costs Formula

Open Work Order Report