Example to illustrate the differences between the Contract and Standard Costings.
For “Contract” Costing it is the cost to make exactly the quantity required, therefore the system will continually divide the setup costs at all levels of the BOM as the quantity increases
In this example the quantity we are making is 8, and the setup cost at the second level is £30, which remains at £30 as we are making the 8 at the one time, so only one setup.
For “Standard” Costing it is the cost to make the quantity you require, but considering the Minimum Order Quantity at each level, i.e. the quantity we will make them, at all times.
In this example the quantity we are making is 8, and the setup cost at the second level is £30, but “Item B” has a Minimum Order Quantity of 1, therefore the system assumes that we will always make 1 each time and incur 8 setup costs which totals £240, and this added to the run time totals £480 for the overall labour as opposed to £270 at Contract Costing.
