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For Linacre Co in 2005 Exam
Production set-ups 105,000 and Set-ups 300
They have 900 units per productions
How to calculate Set up cost since they haven’t given any number of setup required for production run?Also, what is recovery rates mean?
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This is an ABC question, so “Recovery Rate” means cost per driver.
They give you the budgeted number of set-ups and the total cost for set-ups, so you can get the cost per set up:
GBP 105,000 / 300 = 350 per set up.
They assume that you will understand 1 production run = 1 set up. This means that the workers set up the machinery to do the specific production run, then change it to do the next run. The question says that they will do the order in ‘production runs of 900.’ They expect you to infer that 1 run = 1 set up.
So you need to calculate total number of orders: 9000 (100 * 60) + (60 * 50)
and divide by the production run size, 900, to get 10 set ups. (9000/900). Multiply by the cost driver, 350, to get 3500 as the set up cost for the product.
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