Throughout WoW’s history intermediate materials have played an important part in professions. When trying to put a value and a minimum price on your crafted items these are important to handle correctly.
Crafting value basics
TSM calculates crafting value by taking the material price of all the materials for an item and multiplying it by the quantity needed for every item. I generally use the crafting price source for all of the crafted items I sell and I find it works really well. This does mean that you need to have the correct value for all the materials however, as otherwise you will not be getting the profit you expect from selling the item in question.
Generally speaking you should value materials at what they are worth, not what you bought them for or how cheaply you can get them. This will also make sure your pricing changes if the market changes and you will always make a profit relative to what you could purchase the materials for right now. The point is that if the materials are worth more than the finished items it is theoretically better to just sell the materials.
The default material value string
The default material value is min(dbmarket, crafting, vendorbuy, convert(dbmarket)). For the vast majority of items this will default to either the market value or the vendor purchase price. Based on opportunity cost considerations this works really well and I personally prefer using this for most materials.
Crafted materials is the big one that sticks out. They will either be valued at crafting cost or at the market value, depending on which is lower. In some cases this is fine, whereas in other cases you should change this. For instance I craft a lot of Vial of the Sands. Pyrium bars have a very low crafting cost for me through pyrium transmutes, so if I keep them at the default material cost method they will be undervalued.
This would cause the profit margin in vials to be overestimated.
Sale rate trumps opportunity cost
In some cases it makes sense to craft finished items even if it is a slight loss compared to the market value of the materials. If you can craft cheap intermediate materials and the intermediate materials do not sell well on their own then you are better off just using the default method for them.
When should you change?
I would personally try out just using dbmarket in most recipes that require intermediate materials. See if this puts your crafting cost and minimum price too high or not. If it is not too high then just keep it. If that puts your minimum price above the market value, then you can start looking at the intermediate crafting costs and see where you are making a profit and adjust material costs as necessary.
You can change the material cost for everything at once under crafting settings or on a per item basis under crafting reports.
Does this even matter?
For most of you there is little value in changing this right now. In SL there will be a lot of intermediate materials however. There are also certain old world markets where this matters, particularly the crafted mounts from Pandaria and Cataclysm where you have a ton of transmute and melting options. Being mindful of how you value your materials is always useful.