Hubbell Policies

• Intercompany (I/C) markup – I/C markup must NOT be included in the standard cost of any items sourced from a Hubbell affiliate.

Costing of Materials: The standard cost of materials should be based on demonstrated historical experience, specifically the last price paid as of standard cost setting time. If a direct material item is purchased from a Hubbell affiliate, see "Costing of Intercompany Items." Exceptions to the last price paid practice may be appropriate in situations where the last purchase price is not considered representative of the actual cost that will be in the December 31 st ending inventory. For example, if the last price paid was unusually high due to the purchase of an abnormally small quantity, air freight was used due to an emergency situation, an alternate vendor was used, or an abnormal price was paid, then the material standard should not be based on that abnormal cost incurred. In these situations, a normal price should be established based on historical prices paid or normal prices expected to be paid on purchases that will occur prior to the end of the year. Conversely, if the last price paid was based on an unusually large purchase and the majority of these items are expected to be in inventory at year end and is expected to represent a significant part of next year’s usage , then the actual price paid should be used, even though it may be considered unusual. A second exception exists. Where appropriate, the use of purchase price associated with an open purchase order is allowable provided the product will be received into inventory prior to the end of current year in which standard cost setting takes place. If significant quantity (more than 50% of expected annual volume) is secured via a purchase agreement for a material for the following year, this cost may be used for the standard cost. Forward-looking estimates of material cost for the following year must NOT be used as the basis for material standard. Documentation that supports the final determination of material cost must be retained as proper supporting documentation and for audit purposes. All deviations from the last actual price paid must be well documented and approved by the Business Controller. The effect of these deviations, individually or in the aggregate, must not result in a material misstatement of the year-end inventory value.

In those situations where a vendor offers a volume discount or a rebate that is payable at a future date, the effect of the volume discount or rebate should not be reflected in the material standard cost.

Cash discounts offered for early payment of invoices should not be taken into account in establishing the material standard cost. These discounts should be recorded as "discounts on purchases" in other factory costs.

The foreign currency exchange rate (FX Rate) used should be the end-of-month September 30 th rate to correspond with the last price paid material costs.

Standard Labor Hours: Standard labor hours should be based on engineering time studies by operation and should represent normally achievable performance using manufacturing equipment and methods/ procedures in use incorporating the planned volumes and planned productivity for the upcoming year. Where significant, time spent by direct labor employees on machine setups can be factored into the standard labor hours of products produced. The earned hours should reflect expected production hours for the upcoming budget year. For example, if the current year forecast reflects an earned hour of 100,000 and the planned volume reflects an increase of 5%, and productivity is 2,000 hours, the budgeted hours would be 100,000 + 5,000 – 2,000 = 103,000 hours.

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