Hubbell Policies

following elements of expense are examples of cost that may be charged to one department and then charged-out, or distributed, to other departments:

• rent and depreciation on facilities and equipment; • property taxes; • utilities; • insurances; • land care; • telephone; •

certification cost, such as UL, CSA, ISO, etc. Those costs related to the manufacturing processes should be charged to manufacturing, while certification cost related to the development of specific products should be charged directly to engineering expense. Not all costs charged to the manufacturing expense pool are related to current production that would be incorporated into the standard cost calculations under full absorption costing and therefore any significant items (those that would move the burden rate by >10%) should be excluded for standard cost calculation. Any exceptions must be approved by the Business Unit Controller and the Corporate Controller. Potential exceptions are as follows: 1. Significant non-recurring environmental clean-up cost related to events which occurred in prior year(s); 2. Significant non-recurring severance cost; cost associated with the site relocation (equipment tear-down, asset impairment charges, moving/ facility relocation cost, etc.); 3. Significant abnormal, non-recurring costs that do not reflect the normal overhead costs (site start-up); and 4. Any practical capacity situation – facility utilization <70% of normal. Standard Burden (Overhead) Rates: Burden rates should be established for departments, cost centers or product lines as necessary to ensure that appropriate manufacturing expenses are applied to the correct products/ product line. Overhead burden rates could have a variable and a fixed rate component or could be applied on a combined (fixed + variable) basis. The burden rate must be set to absorb the total planned expense for the upcoming year with budgeted earned hours as discussed earlier. Timeline for locking the cost basis and earned hours: The budgeted factory costs and earned hours should be locked following a management review and approval at the latest October 31 st in order to allow the cost accounting team to calculate the standards. Any changes to the costs / earned hours thereafter should be budgeted as planned variances. Costing of Intercompany Items: For U.S. reporting purposes, inter-company and intra-company sourced items (i.e. those purchased from Hubbell affiliates) should be costed at the manufacturing location's new standard cost each year, even though this cost may not represent the last actual purchase price paid by the acquiring entity as of the standard setting time. Due to SAP configuration limitations, the cost of these items will not include the cost of inbound freight, duty and insurance (if paid by a Hubbell affiliate buyer). The rationale for setting the standard at the manufacturing location's new standard cost rather than the last actual purchase price paid is that the manufacturing location's new standard represents the current cost of the items as of standard cost setting time.

The transfer price mark-up charged by the Hubbell affiliate selling unit to the Hubbell affiliate purchasing unit must

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