Doubt ?? - Machine Hour Rate

Cost Accounts 1412 views 6 replies

QUESTION :

In a factory, a machine is considered to work for 208 hours in a month. It includes maintenance time of 8 hours and setup time of 20 hours.

The expense data relating to the machine are as under.

Fixed Expenses (Per month)

-          Depreciation – 4000

-          Rent of building – 1000

Variable Expenses (Per month)

-          Repairs and maintenance – 5040

-          Consumable stores – 3960

Calculation of two-tier machine hour rate for running time.

SOLUTION :

a)      Effective hour per month of the machine for recovery of fixed expenses

= 208 Hrs – 8 Hrs = 200 Hrs.

b)      Effective hour per month of the machine for recovery of variable expenses

= 208 Hrs – 8 Hrs – 20 hrs = 180 Hrs.

Comprehensive two tier machine hour rate :

= (Fixed Expenses/Effective hours) + (Variable Expenses / Effective hours)

= (5000 / 200 Hrs) + (9000 / 180)

= 25 + 50

= Rs 75 per hour of running time.

 

My doubt is why don’t we include maintenance time (i.e. 8 Hrs) for calculation of Effective hour of fixed expense?

 

Replies (6)

How would you define effective hours? Why according to you, should maintenance hours be included in effective hours?

 

Machine set up time varies according to the product line , and according to the process flow on the particular batch / day, where as maintenance will not not take place generally every day , it will be as and when like  weekly once, or fortnight,or monthly ( so matainance time is fixed in nature ), where as set up time is variavle in nature .

and maintananc time is not for the production related , and its relation isnill to the effecetive machine hour rate, so please exclude thesame, and we are going to recover this so computaed machine hour rate from the product line and products , so ignore in fixed overhead rate computation

 

 

Thanks Mannem

during  mantenance time  there is no production.

HRA related to" how much overhead during the production p/h.

See variable expenses you understand.

Problem is fixed costs-

as per your solution this is happened

=4000/200+1000/200

=Rs.25.

Rs.4000 is depriciation which is not allocated over maintanance hour because in maintanance hour machine is not operated.

And

Rs.1000 is rent which is not allocated over maintanance hour because in maintanance the spare parts are given outside for washing or service,which is an assumption or we may also think that maintanance will not take place daily basis so it is ignored.

My doubt is why we are excluding set up time for calculating repairs and maintenance and consumables stores, though it is unproductive


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