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Machine Hour Rate Calculation

Today, I studied two more examples relating to machine hour rate calculation and came on this plate form to explain more clear about machine hour rate.

In simple words, Machine hour rate is base to calculate overheads more fastly without wasting time. We associate all overheads with using of machine and it is very easy for cost accountant to calculate total cost if we know machine hour rate and total hours of machine used. It also useful for calculating each job's machine hour cost.

For Example

Gemini enterprises undertakes three different jobs A,B and C. All of them require, the use of a special machine and also the use of a computer. The computer is hired and the hire charges work out to Rs. 420000 per annum. The expenses regarding the machine are estimated as follows:

Rent for the quarter Rs. 17500

Depreciation per annum Rs. 2,00,000

Indirect charges per annum Rs. 1,50,000

During the first month of operation the following details were taken from the job register.

Number of hours the machine was used :   A → B → C

a ) Without the use of the computer   600 → 900

b) with the use of computer 400 → 600 → 1000

You are required to compute the machine hour rate :

a) For the firm as a whole for the month when the computer was used and when the computer was not used.

b) For the individual jobs A, B and C.

Solution :

Working notes :

Ist Calculate Total Machine Hours in Different Cases


i) Total machine hours used 

600 + 900 + 400 +600 +1000 = 3500

ii) Total machine hours without the use of computers

600 +900 = 1500

iii) Total machine hours with the use of computer

400 + 600 +1000 = 2000

2nd Calculate Total Overheads

 Total overheads of the machine per month

 a) Rent 17500 /3 = 5833.33
b) Depreciation 200000 /12 = 16666.67
c) Indirect Charges 150000 / 12 = 12500

-----------------------------------------------
Total = 35000
------------------------------------------------

3rd Calculate Machine Hour Rate

= Total Overhead / Total hours machine used


In a) Situation  - Overhead for using machines without computer

Rs. 35000 / 3500 hrs = Rs. 10 per hour

In b) Situation - Overhead for using machines with computer

Rs. 35000 / 2000 = Rs. 27.50 per hour

4th Calculate Machine Hour Rate  For Each job

If you are learning cost accounting, you know what is job, job is specific work in production process which we can easily identify. In above example, there are A, B and C job. so, we can calculate machine hour for each job after calculating total Machine hour rate with  and without computer


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Accounting Education: Machine Hour Rate Calculation
Machine Hour Rate Calculation
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Accounting Education
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