Calculate a Setup Cost Pool
Calculate an activity rate and assign setup cost to products using setup count.
A plant has $120,000 of annual setup-related cost. Product A uses 120 setups; Product B uses 480 setups. The old model spreads setup cost by labor hours, but setup work happens each time a run changes. Activity rate = activity pool cost / total driver quantity The common shortcut is to spread setup cost by labor hours because labor hours are already in the model. That violates causality when setups are triggered by production runs, not by labor time. Define pool Setup activity pool = setup technicians ($90,000) + setup supplies ($18,000) + scheduling support ($12,000) = $120,000. Only include…
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