Accounting Definitions For Setup
Thanks to Galorath’s Joe Falque for providing these definitions for setup:
Setup Accounting Definition
Expenses incurred each time a batch is produced. It consists of engineering cost of setting up the production runs or machines, paperwork cost of processing the work order, and ordering cost to provide raw materials for the batch.
Production Setup
Production setup activities support an operation’s need to manufacture a diversity of products on the same equipment. Since setups are non value added, firms should seek to minimize their impact on manufacturing capacity and flexibility. World class manufacturing calls for heavy focus on setup reduction activities to support inventory reduction, capacity debottlenecking, and manufacturing flexibility. One-time portion of a production cycle in which a specific machine, work center, or assembly line is ‘made ready’ to switch from production of the last good piece of the last lot to the first good piece of the new lot, also known as change over.
Manufacturing Definition
Setup Cost
Setup costs include the labor and material to ready a machine for production. They may include the processing of work orders or a first-article inspection. Gathering of all required equipment hand and automated, tools, work orders, materials etc. which are needed to perform the manufacturing process.
Setup Cost Calculation
Setup costs are treated as a one time occurrence and that cost is divided or amortized over the batch size to be produced during the batch cycle. Each unit of the batch carries an equal share of the set up time and materials cost which are added to each unit run time and materials to calculate a total per unit cost. This cost curve on the part cost figure is high when batches are small and rapidly decreases with increasing batch quantity.
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