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
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Total = 35000
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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
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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