How to Determine the Standard Cost Per Unit
To find the standard cost, you first compute the cost of direct materials, direct labor, and overhead per unit. Then you add up these amounts.
The figure applies this approach to Band Book Company. To calculate the standard cost of direct materials, multiply the direct materials standard price of $10.35 by the direct materials standard quantity of 28 pounds per unit.
The result is a direct materials standard cost of $289.80 per case. To compute direct labor standard cost per unit, multiply the direct labor standard rate of $12 per unit by the direct labor standard hours per unit of 4 hours. The standard cost per unit is $48 for direct labor.
Now multiply the overhead allocation rate of $10 per hour by the direct labor standard hours of 4 hours per unit to come to a standard cost of overhead per unit of $40.
Add together direct materials, direct labor, and overhead to arrive at the standard cost per unit of $289.80 + $48 + $40 = $377.80. Making a single case of books costs Band Book $377.80.