BOM costing

BOM costing is pricing each line of a bill of materials (quantity × (1 + scrap allowance) × unit cost) and adding the lines to get a cost per unit of the parent product. Sub-assemblies are costed first, and each total is carried up once into the parent.

Full costing adds labour and overhead from the routing, which is the list of operations and times. Microsoft's Dynamics 365 documentation (updated 1 September 2026) shows what a complete standard-cost BOM calculation draws on: item cost records by effective date, planned scrap on BOM lines, routing operation times, resource hourly costs and overhead by surcharge or rate.

In four published worked examples, materials were 27% to 75% of full unit cost, so full cost ran 1.3 to 3.7 times the material cost.

Materials-only cost versus full unit cost

Method: in October 2026 four worked cost examples were compared. OpenBOM's example has materials of 157 and a total of 217, and Patron Accounting's example has materials of 640 and a total of 850. ErpDrive's cost sheet has materials of 47.54, scrap of 2.85 and a total of 84.37, and its machined bracket has materials of 46.53 and a total of 171.53. The shares and ratios are arithmetic from those figures. Components, bought-in assemblies and any scrap allowance were counted as materials, then divided by the stated total.

These are illustrative examples from vendors and accountants, not surveys. They show how wide the spread is, not a benchmark. A fabricator with expensive machine hours and a trader-assembler with bought-in parts will land at opposite ends.

Your BOM cost is one of five costs, and each answers a different question. Use the table to say which one a number is before it goes into a quote or a stock valuation.

Some enterprise resource planning (ERP) systems keep a costing BOM for estimates and a production BOM for planning and issuing materials. The product is the same, the purpose differs. The fourth row, landed cost, is the rate that belongs on each component line.

A per-unit sheet has one line per component, then labour, then overhead. The sheet below is an illustrative model for a small LED fitting. Every rate and quantity is an assumption, so replace them with your own.

Materials are 59.9% of this full cost (410.60 ÷ 685.60).

Scrap needs one rule. Under India's Cost Accounting Standard 6 on material cost, normal scrap is included in the material cost of good production, and abnormal scrap is left out and treated as a loss. Put your normal allowance in the BOM quantity and book spikes separately.

Run these six tests on one product. Each has a pass and a fail.

1. Price change: raise one component's price, then open the parent. Pass: the parent cost changes without re-keying. Fail: it shows the old cost.
2. Scrap: compare each line's allowance with your recorded scrap. Pass: the allowance is within one percentage point of the scrap you recorded over the last three production runs. Fail: it differs by more, or is zero on cut or machined material.
3. Units: check every unit of measure against the purchase unit. Pass: all match. Fail: metres against millimetres, or pieces against sets.
4. Landed price: compare the BOM rate with the invoice plus freight and duty. Pass: freight and duty are included. Fail: the bare invoice rate.
5. Sub-assemblies: pass if each is costed once and carried up as one line. Fail if its parts also appear in the parent.
6. Rates: pass if labour and overhead rates were reviewed in the current financial year. Fail if they were not.

On the Advance and Enterprise plans, Arka Inventory lets you create bills of materials for standard products or specific orders, check material availability against the BOM, plan purchases and track consumption during production. The Enterprise plan adds landed cost, which allocates shipping, duties, taxes and fees to each unit. As of October 2026, the pricing page lists Advance at 499 a month billed yearly, with two licences included and 52 a month for each extra user; check the currency on the page.

A 15-day free trial with full access and no card is available, which is the time to run the price-change test from check 1 on your own products before relying on any cost figure.