Hubbell Policies

distribution center, Hubbell affiliate, or to a 3 rd party customer should be excluded from the standard cost and classified as freight-out, or intercompany freight if to Hubbell affiliate, and included in logistics and transportation total expense in Onestream.

• Tariff - As importer of record, import tariff on purchases of materials should be included in the standard material cost.

• Unavoidable/Engineered Scrap - The material standard of manufactured components and finished goods should include the cost of unavoidable scrap, or often referred to as engineered scrap, incurred in the manufacturing process (e.g. edges/ends of steel coil; unusable, short ends of bar stock; drop-off, purgings; direct materials consumed in the ordinary course of a set-up process; melt-losses; etc.). The cost associated with scrapped material that is, or should be avoidable, should be charged to the scrap expense account in manufacturing and should not be included in the standard material cost. • Material burden cost – the cost associated with the procurement of direct materials should be included in the standard cost of the materials. Procurement cost can be allocated as a material cost element (material burden). The total cost of purchasing overhead should be allocated across all procured direct materials based on an appropriate cost driver. It is also permissible to allocate purchasing cost as part of the standard burden allocation; see “ Standard Burden ” Section below. • Minimum Lot Size Charges - Minimum lot size charges should be included in the material standard if they have been and are expected to remain a recurring cost. However, if the charge is associated with an abnormally small and non-recurring purchase quantity, the charge should be excluded from the standard cost. Rationale for excluding these costs should be documented with sufficient detail and retained for audit purposes. • Product Packaging - Product packaging should be classified as part of the material standard. Packaging associated with shipment of product from the manufacturing sites into the distribution stream should be classified as operating supplies within warehousing and distribution expense (currently called shipping expense). In most cases, the distinction between classification as material cost versus operating supplies in warehousing and distribution should be based on the manner in which individual finished products are typically sold to outside customers (i.e. if a product is typically sold and shipped as a single piece on a pallet, any packaging associated with the single piece, including the pallet, would be treated as material cost; if a product is typically sold in case lots with ten items per case, each of which is individually packaged, the packaging associated with each of the items as well as the ten-pack case itself should be treated as part of the material standard; if in the previous example, each of the ten-pack cases are packaged in an outer carton with four cases in each carton, but again, the items are typically sold in lot sizes of ten, the outer carton would be treated as an operating supply in warehousing and distribution expense rather than as material cost. • Resale Items - Products purchased complete for resale from third party vendors or non-SAP Hubbell affiliates should be treated as material cost. Products transferred or purchased from SAP Hubbell affiliates and to those which further labor will be added at the receiving location can retain their elements of cost (i.e. material, labor and burden). • Royalties & License Fees - Royalties and license fees directly related to the purchase, manufacture, or sale of specific products should be classified as material cost. However, royalty payments which are: 1) a form of contingent purchase price paid for the acquisition of a company; or 2) paid as part of a contractual arrangement for the engineering development of a product for your operation, should not be treated as an inventoriable cost. • Outside Processing - The cost associated with outside processing by third party vendors (e.g. outside painting, plating, fabricating, etc.) should be included in the material standard.

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