Short & sweet: Set-up costs

Setup costs include all costs that are related to setup processes. Set-up costs are the second cost group to be considered when determining economic production lot sizes, alongside inventory costs. Precisely determined set-up costs are essential for the correct determination of economical batch sizes.

Set-up costs include:

  • the total consumption of materials, tools and aids,
  • Tool logistics costs,
  • Start-up costs,
  • etc.,

that is generated specifically during a setup process or on average over all setup processes.

Our tip:

When determining the set-up costs, it is the variable costs that are incurred again with each set-up process that are important. Hourly machine rates are full cost values and as such have no place in the calculation of setup costs.

Personnel costs are also only to be considered when determining setup costs to the extent that they would have been incurred without the setup process. The costs for setters, for example, who supervise a shift and have to be paid regardless of whether set-up is required during the shift or not, should not be taken into account when determining the set-up costs.

On the other hand, in the case of bottleneck machines, opportunity costs for the lack of machine capacity must also be taken into account in addition to the usual cost types. These opportunity costs correspond to the costs of lost sales during the set-up time.

Picture of Prof. Dr. Andreas Kemmner

Prof. Dr. Andreas Kemmner

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