Doubt ?? - Machine Hour Rate

Krish (CA Final ) (3331 Points)

02 March 2011  

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?