diff --git a/erpnext/manufacturing/doctype/bom/bom.js b/erpnext/manufacturing/doctype/bom/bom.js
index aa3a64c1f7c..5696d69e648 100644
--- a/erpnext/manufacturing/doctype/bom/bom.js
+++ b/erpnext/manufacturing/doctype/bom/bom.js
@@ -1026,7 +1026,7 @@ frappe.tour["BOM"] = [
 frappe.ui.form.on("BOM Secondary Item", {
 	valuation_type(frm, cdt, cdn) {
 		const row = locals[cdt][cdn];
-		if (row.valuation_type !== "% of FG Cost") {
+		if (row.valuation_type !== "% of Component Cost") {
 			frappe.model.set_value(cdt, cdn, "cost_allocation_per", 0);
 		}
 		if (row.valuation_type === "Valuation Rate") {
diff --git a/erpnext/manufacturing/doctype/bom/bom.py b/erpnext/manufacturing/doctype/bom/bom.py
index 98ddfbb8942..b743d9c32b9 100644
--- a/erpnext/manufacturing/doctype/bom/bom.py
+++ b/erpnext/manufacturing/doctype/bom/bom.py
@@ -1092,7 +1092,7 @@ class BOM(WebsiteGenerator):
 
 	def calculate_secondary_items_costs(self, save=False):
 		"""Valuation Rate and Manual rows carry their own cost, deducted from the raw
-		material cost; the % of FG Cost rows split the remainder by their percentage."""
+		material cost; the % of Component Cost rows split the remainder by their percentage."""
 		total_sm_cost = 0
 		base_total_sm_cost = 0
 		precision = self.precision("raw_material_cost")
diff --git a/erpnext/manufacturing/doctype/bom/test_bom.py b/erpnext/manufacturing/doctype/bom/test_bom.py
index 23479a96452..b16dc0d5bfe 100644
--- a/erpnext/manufacturing/doctype/bom/test_bom.py
+++ b/erpnext/manufacturing/doctype/bom/test_bom.py
@@ -462,7 +462,7 @@ class TestBOM(ERPNextTestSuite):
 				"secondary_item_type": "Additional Finished Good",
 				"qty": 1,
 				"cost_allocation_per": 10,
-				"valuation_type": "% of FG Cost",
+				"valuation_type": "% of Component Cost",
 			},
 		)
 
@@ -497,7 +497,7 @@ class TestBOM(ERPNextTestSuite):
 				"secondary_item_type": "Scrap",
 				"qty": 1,
 				"cost_allocation_per": 10,
-				"valuation_type": "% of FG Cost",
+				"valuation_type": "% of Component Cost",
 			},
 		)
 		self.assertRaises(frappe.ValidationError, bom_doc.save)
@@ -570,7 +570,7 @@ class TestBOM(ERPNextTestSuite):
 				"secondary_item_type": "By-Product",
 				"qty": 1,
 				"cost_allocation_per": 10,
-				"valuation_type": "% of FG Cost",
+				"valuation_type": "% of Component Cost",
 			},
 		)
 		bom_doc.save()
diff --git a/erpnext/manufacturing/doctype/bom_secondary_item/bom_secondary_item.json b/erpnext/manufacturing/doctype/bom_secondary_item/bom_secondary_item.json
index 9f740752a72..40daf1fcc78 100644
--- a/erpnext/manufacturing/doctype/bom_secondary_item/bom_secondary_item.json
+++ b/erpnext/manufacturing/doctype/bom_secondary_item/bom_secondary_item.json
@@ -138,7 +138,7 @@
   },
   {
    "default": "0",
-   "depends_on": "eval:doc.valuation_type == '% of FG Cost'",
+   "depends_on": "eval:doc.valuation_type == '% of Component Cost'",
    "fieldname": "cost_allocation_per",
    "fieldtype": "Percent",
    "label": "Cost Allocation %",
@@ -178,11 +178,11 @@
   },
   {
    "default": "Valuation Rate",
-   "description": "Valuation Rate and Manual value this item on its own and deduct that cost from the raw material cost, like the pre-v16 scrap items. % of FG Cost allocates a percentage of the remaining raw material cost.",
+   "description": "Valuation Rate and Manual value this item on its own and deduct that cost from the raw material cost, like the pre-v16 scrap items. % of Component Cost allocates a percentage of the remaining raw material cost.",
    "fieldname": "valuation_type",
    "fieldtype": "Select",
    "label": "Valuation Type",
-   "options": "Valuation Rate\n% of FG Cost\nManual",
+   "options": "Valuation Rate\n% of Component Cost\nManual",
    "reqd": 1,
    "show_description_on_click": 1
   },
diff --git a/erpnext/manufacturing/doctype/bom_secondary_item/bom_secondary_item.py b/erpnext/manufacturing/doctype/bom_secondary_item/bom_secondary_item.py
index ec2f72247ac..a5fc82dfbd5 100644
--- a/erpnext/manufacturing/doctype/bom_secondary_item/bom_secondary_item.py
+++ b/erpnext/manufacturing/doctype/bom_secondary_item/bom_secondary_item.py
@@ -32,7 +32,7 @@ class BOMSecondaryItem(Document):
 		stock_qty: DF.Float
 		stock_uom: DF.Link | None
 		uom: DF.Link
-		valuation_type: DF.Literal["Valuation Rate", "% of FG Cost", "Manual"]
+		valuation_type: DF.Literal["Valuation Rate", "% of Component Cost", "Manual"]
 	# end: auto-generated types
 
 	pass
diff --git a/erpnext/manufacturing/doctype/job_card/test_job_card.py b/erpnext/manufacturing/doctype/job_card/test_job_card.py
index 97a1a2faa15..0250643a425 100644
--- a/erpnext/manufacturing/doctype/job_card/test_job_card.py
+++ b/erpnext/manufacturing/doctype/job_card/test_job_card.py
@@ -1303,7 +1303,7 @@ class TestJobCard(ERPNextTestSuite):
 					"qty": 1,
 					"process_loss_per": 10,
 					"cost_allocation_per": 5,
-					"valuation_type": "% of FG Cost",
+					"valuation_type": "% of Component Cost",
 					"secondary_item_type": "Scrap",
 				},
 			)
@@ -2645,7 +2645,7 @@ class TestJobCard(ERPNextTestSuite):
 					"secondary_item_type": "Scrap",
 					"qty": 1,
 					"cost_allocation_per": cost_allocation_per,
-					"valuation_type": "% of FG Cost" if cost_allocation_per else "Valuation Rate",
+					"valuation_type": "% of Component Cost" if cost_allocation_per else "Valuation Rate",
 				},
 			)
 			bom_doc.save()
@@ -2701,7 +2701,7 @@ class TestJobCard(ERPNextTestSuite):
 		self.assertEqual(rows[bom_links[0]].qty, 2)
 		self.assertEqual(rows[bom_links[0]].valuation_type, "Valuation Rate")
 		self.assertEqual(rows[bom_links[1]].qty, 3)
-		self.assertEqual(rows[bom_links[1]].valuation_type, "% of FG Cost")
+		self.assertEqual(rows[bom_links[1]].valuation_type, "% of Component Cost")
 
 	@ERPNextTestSuite.change_settings(
 		"Manufacturing Settings", {"overproduction_percentage_for_work_order": 100}
diff --git a/erpnext/manufacturing/doctype/production_plan/test_production_plan.py b/erpnext/manufacturing/doctype/production_plan/test_production_plan.py
index 858b19287ba..385f72bb848 100644
--- a/erpnext/manufacturing/doctype/production_plan/test_production_plan.py
+++ b/erpnext/manufacturing/doctype/production_plan/test_production_plan.py
@@ -4023,7 +4023,7 @@ def make_bom(**args):
 					"stock_uom": item_doc.stock_uom,
 					"qty": args.scrap_qty or 1,
 					"cost_allocation_per": args.scrap_cost_allocation_per or 10,
-					"valuation_type": "% of FG Cost",
+					"valuation_type": "% of Component Cost",
 					"process_loss_per": args.scrap_process_loss_per or 10,
 				},
 			)
diff --git a/erpnext/manufacturing/doctype/work_order/test_work_order.py b/erpnext/manufacturing/doctype/work_order/test_work_order.py
index 404aab078f8..7bcfb7ed248 100644
--- a/erpnext/manufacturing/doctype/work_order/test_work_order.py
+++ b/erpnext/manufacturing/doctype/work_order/test_work_order.py
@@ -4789,7 +4789,7 @@ class TestWorkOrder(ERPNextTestSuite):
 				"item_name": scrap_item,
 				"qty": 3,
 				"cost_allocation_per": 25,
-				"valuation_type": "% of FG Cost",
+				"valuation_type": "% of Component Cost",
 				"process_loss_per": 0,
 			},
 		)
@@ -4838,7 +4838,7 @@ class TestWorkOrder(ERPNextTestSuite):
 				"item_name": scrap_item,
 				"qty": 3,
 				"cost_allocation_per": 25,
-				"valuation_type": "% of FG Cost",
+				"valuation_type": "% of Component Cost",
 				"process_loss_per": 0,
 			},
 		)
diff --git a/erpnext/patches.txt b/erpnext/patches.txt
index e00711ccf42..8af83828c17 100644
--- a/erpnext/patches.txt
+++ b/erpnext/patches.txt
@@ -507,3 +507,4 @@ erpnext.patches.v16_0.append_fieldname_to_pos_search_fields
 erpnext.patches.v16_0.set_secondary_item_valuation_type
 erpnext.patches.v16_0.add_transaction_roles_to_sms_settings
 erpnext.patches.v16_0.recalculate_holiday_list_totals
+erpnext.patches.v16_0.rename_component_cost_valuation_type
diff --git a/erpnext/patches/v16_0/rename_component_cost_valuation_type.py b/erpnext/patches/v16_0/rename_component_cost_valuation_type.py
new file mode 100644
index 00000000000..f2c980a17fc
--- /dev/null
+++ b/erpnext/patches/v16_0/rename_component_cost_valuation_type.py
@@ -0,0 +1,15 @@
+import frappe
+
+DOCTYPES = ("BOM Secondary Item", "Stock Entry Detail", "Subcontracting Receipt Item")
+
+
+def execute():
+	"""Rename the `% of FG Cost` valuation type: the percentage is of the component cost."""
+	for doctype in DOCTYPES:
+		frappe.db.set_value(
+			doctype,
+			{"valuation_type": "% of FG Cost"},
+			"valuation_type",
+			"% of Component Cost",
+			update_modified=False,
+		)
diff --git a/erpnext/stock/doctype/stock_entry/stock_entry.js b/erpnext/stock/doctype/stock_entry/stock_entry.js
index c1034e69110..b6f865618b3 100644
--- a/erpnext/stock/doctype/stock_entry/stock_entry.js
+++ b/erpnext/stock/doctype/stock_entry/stock_entry.js
@@ -310,7 +310,7 @@ frappe.ui.form.on("Stock Entry", {
 		frm.trigger("toggle_warehouse_fields");
 
 		// only BOM-less rows are editable, and they cannot allocate a BOM percentage;
-		// read-only rows from a BOM still display their stored % of FG Cost
+		// read-only rows from a BOM still display their stored % of Component Cost
 		frm.fields_dict.items.grid.update_docfield_property("valuation_type", "options", [
 			"Valuation Rate",
 			"Manual",
diff --git a/erpnext/stock/doctype/stock_entry/stock_entry.py b/erpnext/stock/doctype/stock_entry/stock_entry.py
index 2dbb940a233..9732fe9d607 100644
--- a/erpnext/stock/doctype/stock_entry/stock_entry.py
+++ b/erpnext/stock/doctype/stock_entry/stock_entry.py
@@ -1656,7 +1656,7 @@ class StockEntry(StockController, SubcontractingInwardController):
 	def set_bomless_secondary_valuation_types(self):
 		"""Secondary rows without a BOM link choose their own costing: valuation rate or manual.
 
-		There is no percentage to allocate without a BOM row, so % of FG Cost is rejected."""
+		There is no percentage to allocate without a BOM row, so % of Component Cost is rejected."""
 		for d in self.get("items"):
 			if d.bom_secondary_item:
 				continue
@@ -1667,10 +1667,10 @@ class StockEntry(StockController, SubcontractingInwardController):
 					d.set_basic_rate_manually = 0
 				continue
 
-			if d.valuation_type == "% of FG Cost":
+			if d.valuation_type == "% of Component Cost":
 				frappe.throw(
 					_(
-						"Row #{0}: % of FG Cost needs a BOM secondary item. Choose Valuation Rate or Manual for {1}."
+						"Row #{0}: % of Component Cost needs a BOM secondary item. Choose Valuation Rate or Manual for {1}."
 					).format(d.idx, frappe.bold(d.item_code))
 				)
 
diff --git a/erpnext/stock/doctype/stock_entry/test_stock_entry.py b/erpnext/stock/doctype/stock_entry/test_stock_entry.py
index 0273888ece6..14d65cfb8ff 100644
--- a/erpnext/stock/doctype/stock_entry/test_stock_entry.py
+++ b/erpnext/stock/doctype/stock_entry/test_stock_entry.py
@@ -1124,7 +1124,7 @@ class TestStockEntry(ERPNextTestSuite):
 				"secondary_item_type": "By-Product",
 				"qty": 1,
 				"cost_allocation_per": 10,
-				"valuation_type": "% of FG Cost",
+				"valuation_type": "% of Component Cost",
 			},
 		)
 		bom_doc.save()
@@ -1208,7 +1208,7 @@ class TestStockEntry(ERPNextTestSuite):
 				"secondary_item_type": "By-Product",
 				"qty": 1,
 				"cost_allocation_per": 10,
-				"valuation_type": "% of FG Cost",
+				"valuation_type": "% of Component Cost",
 			},
 		)
 		bom_doc.save()
@@ -1422,7 +1422,7 @@ class TestStockEntry(ERPNextTestSuite):
 		self.assertEqual(fg_row.basic_amount, 830)
 
 		# there is no percentage to allocate without a BOM row
-		manual_row.valuation_type = "% of FG Cost"
+		manual_row.valuation_type = "% of Component Cost"
 		self.assertRaises(frappe.ValidationError, entry.save)
 
 	def test_valuation_rate_lookup_without_voucher_no(self):
@@ -3348,7 +3348,7 @@ class TestStockEntry(ERPNextTestSuite):
 				"qty": 5,
 				"cost_allocation_per": 25,
 				"process_loss_per": 0,
-				"valuation_type": "% of FG Cost",
+				"valuation_type": "% of Component Cost",
 			},
 		)
 		bom.insert()
@@ -3410,7 +3410,7 @@ class TestStockEntry(ERPNextTestSuite):
 				"qty": 5,
 				"cost_allocation_per": 0,
 				"process_loss_per": 0,
-				"valuation_type": "% of FG Cost",
+				"valuation_type": "% of Component Cost",
 			},
 		)
 		bom.insert()
@@ -3497,7 +3497,7 @@ class TestStockEntry(ERPNextTestSuite):
 				"qty": 5,
 				"cost_allocation_per": 25,
 				"process_loss_per": 0,
-				"valuation_type": "% of FG Cost",
+				"valuation_type": "% of Component Cost",
 			},
 		)
 		bom.insert()
diff --git a/erpnext/stock/doctype/stock_entry_detail/stock_entry_detail.json b/erpnext/stock/doctype/stock_entry_detail/stock_entry_detail.json
index d30910461a6..200892e1283 100644
--- a/erpnext/stock/doctype/stock_entry_detail/stock_entry_detail.json
+++ b/erpnext/stock/doctype/stock_entry_detail/stock_entry_detail.json
@@ -682,7 +682,7 @@
    "fieldname": "valuation_type",
    "fieldtype": "Select",
    "label": "Valuation Type",
-   "options": "\nValuation Rate\n% of FG Cost\nManual",
+   "options": "\nValuation Rate\n% of Component Cost\nManual",
    "read_only_depends_on": "eval:!doc.secondary_item_type || doc.bom_secondary_item"
   }
  ],
diff --git a/erpnext/stock/doctype/stock_entry_detail/stock_entry_detail.py b/erpnext/stock/doctype/stock_entry_detail/stock_entry_detail.py
index 8d8fba25590..05a39324a46 100644
--- a/erpnext/stock/doctype/stock_entry_detail/stock_entry_detail.py
+++ b/erpnext/stock/doctype/stock_entry_detail/stock_entry_detail.py
@@ -69,7 +69,7 @@ class StockEntryDetail(Document):
 		transferred_qty: DF.Float
 		secondary_item_type: DF.Literal["", "Co-Product", "By-Product", "Scrap", "Additional Finished Good"]
 		uom: DF.Link
-		valuation_type: DF.Literal["", "Valuation Rate", "% of FG Cost", "Manual"]
+		valuation_type: DF.Literal["", "Valuation Rate", "% of Component Cost", "Manual"]
 		use_serial_batch_fields: DF.Check
 		valuation_rate: DF.Currency
 	# end: auto-generated types
diff --git a/erpnext/subcontracting/doctype/subcontracting_receipt/test_subcontracting_receipt.py b/erpnext/subcontracting/doctype/subcontracting_receipt/test_subcontracting_receipt.py
index 3dfa6188b0b..5c4a95ee033 100644
--- a/erpnext/subcontracting/doctype/subcontracting_receipt/test_subcontracting_receipt.py
+++ b/erpnext/subcontracting/doctype/subcontracting_receipt/test_subcontracting_receipt.py
@@ -1216,7 +1216,7 @@ class TestSubcontractingReceipt(ERPNextTestSuite):
 				"item_code": percentage_item,
 				"secondary_item_type": "Co-Product",
 				"stock_qty": 1,
-				"valuation_type": "% of FG Cost",
+				"valuation_type": "% of Component Cost",
 				"cost_allocation_per": 10,
 			},
 		)
diff --git a/erpnext/subcontracting/doctype/subcontracting_receipt_item/subcontracting_receipt_item.json b/erpnext/subcontracting/doctype/subcontracting_receipt_item/subcontracting_receipt_item.json
index a4d88f0c435..ec7cb78af70 100644
--- a/erpnext/subcontracting/doctype/subcontracting_receipt_item/subcontracting_receipt_item.json
+++ b/erpnext/subcontracting/doctype/subcontracting_receipt_item/subcontracting_receipt_item.json
@@ -623,7 +623,7 @@
    "fieldname": "valuation_type",
    "fieldtype": "Select",
    "label": "Valuation Type",
-   "options": "\nValuation Rate\n% of FG Cost\nManual",
+   "options": "\nValuation Rate\n% of Component Cost\nManual",
    "read_only": 1
   },
   {
diff --git a/erpnext/subcontracting/doctype/subcontracting_receipt_item/subcontracting_receipt_item.py b/erpnext/subcontracting/doctype/subcontracting_receipt_item/subcontracting_receipt_item.py
index 46c710afb48..03da2a50f5f 100644
--- a/erpnext/subcontracting/doctype/subcontracting_receipt_item/subcontracting_receipt_item.py
+++ b/erpnext/subcontracting/doctype/subcontracting_receipt_item/subcontracting_receipt_item.py
@@ -64,7 +64,7 @@ class SubcontractingReceiptItem(Document):
 		subcontracting_receipt_item: DF.Data | None
 		secondary_item_type: DF.Literal["", "Co-Product", "By-Product", "Scrap", "Additional Finished Good"]
 		use_serial_batch_fields: DF.Check
-		valuation_type: DF.Literal["", "Valuation Rate", "% of FG Cost", "Manual"]
+		valuation_type: DF.Literal["", "Valuation Rate", "% of Component Cost", "Manual"]
 		warehouse: DF.Link | None
 	# end: auto-generated types