Course Outline
Join PRO

What is setup cost?

Author:
Harold Averkamp, CPA, MBA

Definition of Setup Cost

In manufacturing, setup cost is the 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 lost opportunity to manufacture profitable output during the time that the equipment is being set up.

Join PRO to Track Progress

Features

Free

PRO

Lifetime Access (One-Time Fee)
Explanations
Quizzes
Q&A
Dictionary
Bookkeeping Video Training
Financial Statements Video Training
Visual Tutorials
Quick Tests
Quick Tests with Coaching
Cheat Sheets
Flashcards
Crossword Puzzles
Word Scrambles with Coaching
Bookkeeping Study Guide
Managerial and Cost Accounting Study Guide
Certificates of Achievement
Bookkeeping Certificate of Excellence
Business Forms
Printable PDF Files
Progress Tracking
Motivational Badges and Points
Motivational Medal Rankings
Motivational Activity Streaks
Public Profile Page of Achievements

About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

Read 3,033 Testimonials

PRO for Teams
  • Easily onboard new users and team admins
  • Monitor individual user progress and grades
  • Monitor team progress and compare users
  • View average grades and find problem areas
  • Monitor recent activity and user achievements
PRO for Teams
Take the Tour Join Pro Upgrade to Pro