diff --git a/erpnext/stock/doctype/stock_entry/stock_entry.py b/erpnext/stock/doctype/stock_entry/stock_entry.py
index 18560fba888..b7417eb72e1 100644
--- a/erpnext/stock/doctype/stock_entry/stock_entry.py
+++ b/erpnext/stock/doctype/stock_entry/stock_entry.py
@@ -572,6 +572,8 @@ class StockEntry(StockController, SubcontractingInwardController):
 			frappe.get_cached_value("BOM", self.bom_no, "cost_allocation_per") if self.bom_no else None
 		)
 
+		secondary_items_cost_basis = self.get_secondary_items_cost_basis(outgoing_items_cost)
+
 		zero_valuation_items = []
 		finished_items_last = sorted(self.get("items"), key=lambda row: cint(row.is_finished_item))
 		for d in finished_items_last:
@@ -591,11 +593,26 @@ class StockEntry(StockController, SubcontractingInwardController):
 				zero_valuation_items,
 				bom_cost_allocation_per,
 				has_consumption_basis,
+				secondary_items_cost_basis,
 			)
 
 		if zero_valuation_items:
 			self._notify_zero_valuation_rate(zero_valuation_items)
 
+	def get_secondary_items_cost_basis(self, outgoing_items_cost) -> float:
+		"""The cost a BOM allocation splits: the consumed rows, or the entry that replaced them."""
+		if outgoing_items_cost or self.purpose != "Manufacture" or not self.work_order:
+			return outgoing_items_cost
+
+		settings = frappe.get_single("Manufacturing Settings")
+		if not (settings.material_consumption and settings.get_rm_cost_from_consumption_entry):
+			return outgoing_items_cost
+
+		if not self.get_consumption_entries():
+			return outgoing_items_cost
+
+		return self._fetch_consumption_entry_cost()
+
 	def has_consumption_basis(self) -> bool:
 		"""Whether the cost of the consumed items is known, even when that cost is zero."""
 		if any(d.s_warehouse for d in self.get("items")):
@@ -629,6 +646,7 @@ class StockEntry(StockController, SubcontractingInwardController):
 		zero_valuation_items,
 		bom_cost_allocation_per=None,
 		has_consumption_basis=False,
+		secondary_items_cost_basis=0,
 	):
 		has_derived_rate = False
 
@@ -653,7 +671,7 @@ class StockEntry(StockController, SubcontractingInwardController):
 				frappe.get_value("BOM Secondary Item", d.bom_secondary_item, "cost_allocation_per")
 			)
 			if flt(d.transfer_qty):
-				d.basic_rate = (outgoing_items_cost * (cost_allocation_per / 100)) / d.transfer_qty
+				d.basic_rate = (secondary_items_cost_basis * (cost_allocation_per / 100)) / d.transfer_qty
 				has_derived_rate = True
 
 		# A rate of zero that was derived rather than left unset is a real cost. Falling back to
diff --git a/erpnext/stock/doctype/stock_entry/test_stock_entry.py b/erpnext/stock/doctype/stock_entry/test_stock_entry.py
index fe6553176f3..5a29b5c37cb 100644
--- a/erpnext/stock/doctype/stock_entry/test_stock_entry.py
+++ b/erpnext/stock/doctype/stock_entry/test_stock_entry.py
@@ -2917,6 +2917,66 @@ class TestStockEntry(ERPNextTestSuite):
 		self.assertEqual(flt(fg_row.basic_amount), 1000.0)
 		self.assertEqual(flt(se.value_difference), 0.0)
 
+	@ERPNextTestSuite.change_settings(
+		"Manufacturing Settings", {"material_consumption": 1, "get_rm_cost_from_consumption_entry": 1}
+	)
+	def test_secondary_item_allocation_uses_consumption_entry_cost(self):
+		"""A BOM allocation splits the consumption entry's cost, not an empty set of consumed rows."""
+		from erpnext.manufacturing.doctype.work_order.test_work_order import make_wo_order_test_record
+		from erpnext.manufacturing.doctype.work_order.work_order import (
+			make_stock_entry as make_stock_entry_from_wo,
+		)
+
+		rm_item = make_item(properties={"is_stock_item": 1, "valuation_rate": 100}).name
+		fg_item = make_item(properties={"is_stock_item": 1}).name
+		scrap_item = make_item(properties={"is_stock_item": 1, "valuation_rate": 20}).name
+		warehouse = "_Test Warehouse - _TC"
+
+		bom = frappe.get_doc(
+			{
+				"doctype": "BOM",
+				"item": fg_item,
+				"currency": "INR",
+				"quantity": 10,
+				"company": "_Test Company",
+			}
+		)
+		bom.append("items", {"item_code": rm_item, "qty": 10})
+		bom.append(
+			"secondary_items",
+			{
+				"secondary_item_type": "Scrap",
+				"item_code": scrap_item,
+				"item_name": scrap_item,
+				"qty": 5,
+				"cost_allocation_per": 25,
+				"process_loss_per": 0,
+			},
+		)
+		bom.insert()
+		bom.submit()
+
+		make_stock_entry(item_code=rm_item, target=warehouse, qty=100, basic_rate=100)
+		wo = make_wo_order_test_record(
+			production_item=fg_item, bom_no=bom.name, qty=10, skip_transfer=1, source_warehouse=warehouse
+		)
+
+		consumption = frappe.get_doc(
+			make_stock_entry_from_wo(wo.name, "Material Consumption for Manufacture", 10)
+		)
+		consumption.submit()
+		self.assertEqual(flt(consumption.total_outgoing_value), 1000.0)
+
+		se = frappe.get_doc(make_stock_entry_from_wo(wo.name, "Manufacture", 10))
+		se.save()
+
+		scrap_row = next(d for d in se.items if d.secondary_item_type)
+		fg_row = next(d for d in se.items if d.is_finished_item)
+
+		self.assertEqual(flt(fg_row.basic_amount), 750.0)
+		self.assertEqual(flt(scrap_row.basic_amount), 250.0)
+		self.assertEqual(flt(se.total_incoming_value), 1000.0)
+
 	def _make_wo_for_free_raw_material(self, rm_item, fg_item, bom_no):
 		from erpnext.manufacturing.doctype.work_order.test_work_order import make_wo_order_test_record
 		from erpnext.manufacturing.doctype.work_order.work_order import (