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INTRODUCTION
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= Machine hour rate is the cost of running a machine per hour.
» Itis one of the methods of absorbing factory expenses to production.
= It is used in those industries or departments where machinery is
predominant and there is little or practically no manual labour.
= In such industries or departments, overhead consists of indirect
expenses in running and operating the machine.
« Therefore, it is desirable to allocate overhead to production on the
basis of working hours of the machines.
» It is not desirable to calculate the machine hour rate for the entire
factory but different rates may be calculated according to their make,
type, size, capacity, wattage, horse power and other factors relating to
each machine or group of machines as a cost centre.
» Machine hour rate is obtained by dividing the total running expenses of
a machine during a particular period by the number of hours the
machine is estimated to work during that period. The formula used in computing the rate is: Calculation of Machine Hour
Rate:
The information required for calculation of machine hour rate is cost of
the machine; cost of installation of the machine; scrap value, if any; life
of the machine in hours; standing charges like rent etc. allocated to the
machine; repairs and maintenance of the machine; power
consumption; set up time; cost of lubricants applied on the machine
and insurance premium of the machine, if any.
Following steps are required to be taken for the calculation of machine
1
hour rate: ©
Each machine or a group of machines should be treated as a cost
centre so that all overheads relating to that machine or machines may
be identified.
Overheads relating to a machine are divided into two parts i.e., fixed
or standing charges and variable or machine expenses. Standing
charges are those expenses which remain constant irrespective of the
use or running of machine and examples of such expenses are rent
and rates, lighting and heating, insurance, supervising labour etc.
Machine exnenses as power. fuel. depreciation. repairs ete. varv with
