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?
CAclubindia
