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Determine the cost rate for each setup activity

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Question - The fabrication dept. of Auto Engines, Inc. wants to estimate setup costs for Year 5. The company has determined that its setup costs are batch-related. Relevant data for the past 5 years are:

Annual Setup Costs (Ave.):

Personnel $240,000.00

Other $45,600.00

Number of production runs/Year (Ave) 120

Annual Production Volume (Ave) 48,000

1) Determine the cost rate for each setup activity.

2) In Year 5 the company is planning on reducing the number of production runs by 20% from the previous five years level. Estimate the setup cost for Year 5.

3) Refer to the annual setup costs. Now assume that $45,600 (other setup costs) actually represent the costs of setup equipment.

How would your answers to the above two questions change?

What assumptions did you make with respect to the existing capacity and the increase (decrease) in the number of setups?

Reference no: EM132051777

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