machine hour rate method

Machine Hour Rate

Meaning

• “The Machine Hour Rate is an actual or predetermined rate of cost apportionment for overhead absorption”

Calculation

• “Machine hour Rate is calculated by dividing the cost to be apportioned or absorbed by the number of hours for which a machine or machines are operated or expected to be operated”

• Machine Hour Rate = Total Factory Overheads

Total Machine Hours

Basis of Apportionment

• Rent, Rates, Taxes, etc.• Depreciation• Lighting• Heating• Power• Repairs and Maintenance• Supervisory Expenses• Labour Welfare Expenses• Insurance• Lubricating Oil, Cotton Waste and Consumable Stores• Interest included in Hire-Purchase.

Presentation/Computation

• Standing Charges• Machine Charges

Standing Charges

• Rent of factory building• Rates of tax and Insurance of Factory Building• Insurance Premium of Machine• Salary of Manager, Supervisor and Foreman• General Lighting• Cotton waste, Cloth waste and Lubricating oil• Consumable stores• Sundry supplies• Operator’s wages• Interest

Machine Expenses

• Depreciation on Machine• Power Expenses• Repairs & Maintenance

Merits of M.H.R.

• Division in Fixed and Variable Expenses• Measurement of Efficiency of Machines• Knowledge of Idle Time• Facility in Estimation• Machine vs. Manual Work