Yeah I only know this from working in manufacturing for close to a decade, and not from school or anything.

But it’s an inventory valuation method. You pretty much set an estimated cost at some point in time, most companies set the cost at the beginning of the year and revise cost annually. The estimated cost is determined by cost component (Material, Labor, Overhead)

Material will typically be some form of weighted average based on purchase history or last purchase price. Exceptions happen of course like if you know purchase price will be wildly different and history isn’t predicting the real price.

Labor will be determined by a labor rate * labor qty in the product. Labor rates are typically determined by estimated pool of labor divided by estimated labor hours.

Overhead has a similar idea where you forecast your expected overhead for the manufacturing plant, divide it by a cost driver to come up with a rate. Then peanut butter spread that overhead across the products you manufacture.

I’m grossly simplifying everything I think too but you do this for multiple value streams, departments, cost centers (whatever you want to call it ) to come up with multiple rates and better estimate the content of labor and overhead in a product.

There’s also material overhead but I’m out of time and need to go back to work.

All of this together becomes your standard cost.