What is setup cost?

Definition of Setup Cost

In manufacturing, setup cost is the 游戏电竞线上外围APP v5.2 cost incurred to get equipment ready to process a different batch of goods. Hence, setup cost is regarded as a batch-level cost in activity based costing.

Setup cost is considered to be a non-value-added cost that should be minimized.

Examples of Setup Costs

Setup costs include the following:

  • Costs of changing the tools or dies on the equipment
  • Preparing and moving materials or components to the equipment
  • Testing the initial output to be certain it meets the specifications

In addition to the out-of-pocket costs , such as the labor cost of setting up the equipment, there is also an opportunity cost . The opportunity cost of setting up the equipment is the 游戏电竞线上外围APP v5.2 lost opportunity to manufacture profitable output during the time that the equipment is being set up.