217

OVGAWfEAOG,.O18TRr8VTQI
ENSES
DAS JS fOR APPOR flONMl:.~T Of Of FFfiREN'f 1!.XP
Baslz

St1ndln1 Cb1rgt1 including

I Rent and J{aleli I. Accordcng to lbc floor area occupted by each truldlcnc
the surrounding space.
ng or
2 I fcalmi and Light mg 2. The number of pomfs used pfus cost of sp«tal lighti dmg
heating for any indiv,dual machine. aftcrnativ~ ly, accor
to floor area occup,cd by each machme.
each
3 Supcrvli1on J. Estimated time devoted by the supervisory staff to
machine.
4, Lubricating Oil nnd Consumable Stores 4. Capicol values, machine hours, or past experience.
S. huurancc S. Insured value of each machine:.
6. Mi.scelJaneous expenses 6. Equitable basis dcpcndtng upon facts.
M1chine or Running Expenses or both.
I Depreciation' I. Machine hours or capital values of the machines ately if
Dcprccuulon for each machine can be calcu lated separ
been
details regarding cost. scrap value and working life have
depreciatio n per hour will
given. In such a cnsc the amount of life
be cost minU.J residual value divided by effec tive work ing
(In hours).
ln case
2. Power 2. Horse power or machines. or machine hours or both. actual
separate meters have been installed for each mach ine,
meter reading.
3 Machine hours or capital values.
3. Repairs
facturing company has three different machines,
Illustration. 5.8. A production department of a manu
hour rates.
for each of which it is desired to established machine the year ending 31st December, 1994 are :
The overhead expenses for this Departme nt for Rs.
Rs.
Consumable Stores • 300
Machine No. I 500
Machine No, 2 600 1,400
Machine No. 3
Repairs and Maintenance : 400
Machine No. I 600
Machine No 2 800 1,800
Machtne No. 3 720
Power 400
If cat and Light 2.400
Rent and Rates 200
Jnsurnncc of Buildings 480
Insurance of Machines 7,200
D~prcciation of Mnchines 4,400 •
Supervision I.JOO
General Charges 20.100

:
Additional operating information is available as follows
Book Value Workmg
Effective H.P. Arca Occupied
(Sq. fl) of Machines Hours

100 12,000 10,000

Machine No I 5
soo 20,000 25.000
Machine No. 2 10
400 16,000 20,000
Machine No 3 15
se.
e. As a mallcr of fact depreciation is a semi-variable expen
Some DCcounumls lake depreciation ns a standing charg ' ond 'Variable' elements. However. in the absence of such
Strictly speaking it should be segregated between •Fixed
taking deprcch1ticrn· nc: a •Fixed' or a 'Voriublc· cost.
1

segregation, n student mny give an approprintc note for

►
 i, 1 -· ~ .. ~- Ot ST Rt OU TIO
O vE kr ,~ - N
h~ne
You nrc requ\rcd to cn
lculatc n Machine Hour ch of the th re e mac • s Sh ow cle ar ly th e
basis of apponionn,cnt tha Rntc for ea •
so\ut\on: . t you use .

COMPUTATION O f MA Cl -lll "E. HOUR RATES

· M_3chioc
Items 8asls of .
Total
Machine Machine
No. 3
Apportionment No . I No. 2
Consumable Stores
R~1'n\~ tmd ~'1l\intcnnocc Alloauion 1,400 JOO soo 600
~\l \\C f Allocation 1,800 40 0 600 80 0
Rent ttn(l Rotes Effective l l.P. '720 t20 240 360
Heal nnd Light Arcu 2.400 240 1..20 0 96 0
lnsumnte of Buildings Arco. 400 40 20 0 160
Insurance of ~tachin¢s Arca 200 20 100 go
Dcpttclat\on of Machines Book Value 480 120 200 16 0
Supc:rv,slon . Machine Hrs. 7.200 L309 3,273 2.618
Oencral Charges Arca 4,400 44 0 2~ 00 1,7 60
Arcn 1.100 110
Total ;
550 440
Machine Hours l0. 10 0 3,099 9,.063 7.9 38
~tl d\h tc Hour Rate 55,000 10..000 25.000 20..00 0
Dcpteciation of ~1achinc .3099 .36252 .39 69
case a mach.inc hour rate ,v,·n be ma y also be apporti•oned on h ba s. r bo .
.. t e 1s o ok va lu e of machine s.. In su ch a
t)q>ttciation
T~ Ma ch ine No4 l Ma ch ine No . 2 M ac hi ne No.. 3
Total $h alt then be '~200 l,8 00
Machine Hout Rate 20,100 3..00 0 2..400
3.590 8.7 90
.359 7,1 20
Nott. ln case the Horse Po .35 16 .3&6
wer of ~◄achincs and Ma
appropriate to ctua.r&c co chine Hours vu y conside
st of power to ditTCfCnt ma rably for dif fer en t mach
Hours"". Sin,alarty, ifl hc chines on lh~ basis of a ines.. it wi ll be
values or Plant and Machi Weighted Ra tio "'Hors
e Po ~~ x Machine
/7 will bc _~ at c to ch
~u st ra tl o~ 5.9. A
Each large machine oc
arge cost of dq'.,rccillil.ion
m~ufacturing company
nery an d Machine Hours
over diff
us
CT
Vlll')' oo ns idc n.b ly
C.nt machines on the lqs
es two ldcntic~I large an
for dif fer en t M ac hi ne
is of.t.Valuc )\. M ac hin
e Ho ur s-~
s, it
cupies ooc quarter of the d fo m id en tic al sm al l m
\\torlw\op and fully em ac
~• ch in e occupi-cs half the
space of a large machine pl oy ed three ,¥O rk cr s; ea hi ne s.
pu~cework. and fully employs hv o wo ch sm al l
rkers,. Th e wo rk er s ar
Each of the six mach inc c pa id by
s is estimated to '\\~rk 1A4
taken as ll..000 wo..... • gb 0 hours pe r year, wh ile
• u. 1n ours ~,ot ca"..."u
1..1q
c ma -1.. •
'-n ,nc th e cf f.---ti' . .-...-..1...:
mach,nc s cost Rs~ 20.00• 0 each, an d . ll --1 ... an d 9,000 working ho ur s for , ..
respectively. sma ma\.-ntnes Rs. 4,000 e·•ch "'~ vc . ~""' "•.. ng lif e lS
each. Scrap values ar St
-
c~na11mach.mc.. I--,... -s_._
~
Repairs, maintenanc-c an 4 ~000 an d
mnchinc Rs. l ..200, durin d oil arc est im ated lo cost for caeh lar Rs.. 10 0
g its effective life. ge m ~h . Rs.
Po\ver consumption costs inc 4 -aOOO an d
sn,nll nu,chine to 2 un,ts • pe . 5 P~ per unit~ and amounts for a lar o. mach' ...
ca ~h sm al l
r hour. -~ ,
Th e n,anager is s,.id Rs ~~~~~
. 4~800 • year, and the '\'O per- hOUf',. an d fo r a
divided equally among rkshop SUJ>CNision
the six machines.. Dctuils .
Rent nnd rates of the wo of other ~ s c •r e:
n...~op : Rs.. ~4 00 a 1-c OC ,-c :~ ha lf hi s tim e ,\ll'hi
ar. ch is
Lioh
o
tinu (to be 3 pponioncd in
the ratio of\\"t.Wket'S cm pl
....,
faking a period af three mo .~ o) ~) Rs ~~.
o~us as i.l bas',s_ ca,n. ...... , 1"'~ " ~ VC 3r
small n,achinc tc$pect1-.•VC Iy.. ~~ the machine• ho w- , ~
rate ft) f u la.N'u.
--~- "' ~ in ~ iUld a
►

219
0vERHEAOS-0tSlR&BUTION

Solution: COMPUTATION OF MACHINE HOUR RATE

Three months ended ••• ········•• 4,••···· ···
.
Particulars Large Machine Small Machine
Rs. Rs.

St1ndin1 Cbaraes :
97.-50 65.00
Lightjng (according to workers employed) ,
400.00 200.00
Rent tnd Rates (according to space occupied) 100.00
Supervision (equally per machine) t00.00
S91..SO 365.00
L66 1.01
Hourly rate of Standing Charges (being divided by 360)
Mac.hint Expenses :
Depreciation large Small
Rs. Rs.
Cost 20,00 0 4,000
Scrap Value 4,000 100
16.000 3,900 .
16,000 3,900 . 0.43
12,000 9,000 1.33
Hourly Rate ,,,

Repairs, Maintenance and Oil : .

0.33 .
Rs. 4,000 divided by 12,000 0.13
Rs. 1,200 divided by 9,000
Powe Consumption :
r 1.00
20 units at 5 p. per unit _/ 0.10
2 units at S p. per unit 1.67
4.32
Machine Hour Rate
stration 5.10. A machine shop in a factory has five mach
ines of exactly simflar type and specification.
hour. The factory works a 40-hour week which
One operator is employed on each machine at Rs. 20 per
operators are paid fully for 40 hours. Costs are
includes four hours for set-up time for each machine. the
reported for the machine shop on the basis of thirteen
four-weekly periods.
are available :
The following details applicable to the cost centre/machine
I. Set-up time is unproductive and no power is consu
med during the set-up time.
2. Original cost of a machine is Rs. 1,30,000.
on original cost.
3. Depreciation on machine is to be provided at I0% per annum
to Rs. 25.
4. Maintenance and repairs per week per machine amounts
27.
5. Consumable stores per week per machine amount to Rs.
paise per unit.
6. Power consumed is IO units per hour per machine at 80
7. Wages paid to the operators are considered as indirect.
8. Overheads apportioned to the cost centre are :
Rent Rs. 3,000 p.a.
Heat and light Rs. 4,000 p.a.
Misc. expenses Rs. 6,000 p.a.
You are required to calculate :
(i) Cost of running one machine for a four-week
period; and
[B. Com. (Hons.) Delhi, 2005 ]
(ii) The machine hour rate.

---- - - - ----
 220 0VERHEADS-01STR.lBlJTJOtt

Solution:
COMPUTATION or MACHINE HOUR RATE
Rs. { 4 ~·O!ks) •

R~m . 3,000 x 4 weeks 46.15

5 machines x 52 \veek.s
61.54
li~ut and light. 4.000 x 4 wee~s
• 5 machines x 52 weeks
. 6.000 x 4 weeks 92.31
Misc. ovcrhcuds • - - - - - - - -
• 5 1nachines x 52 weeks
4 l.000.00
Depreciation : Rs. 1.30:000 x I 0%
52 100.00
Maintenance : Rs. 25 x 4
.108.00
Consumable stores : Rs. 27 x 4
1.152.00
Power : IO units x 36 hrs. x 4 x Re 0.80
3~200.00
Wages of operator: 20 x 40 hrs x 4 weeks
5.760.00
Total
40
No. of machine hours
less: Set-up tjme - 4

Effective hours per week

Etlective hours per -t weeks= 36 x 4 = 144
-36

Rs. 5,760
:. Machine hour rate J hrs = Rs. 40
44
Illustration 5.11. A manufacturing unit has purchased and installed a new machine of Rs. 12,70,000 to
its fleet of 7 existing machines. The new machine has an estimated life of 12 years and is expected to realise
Rs. 70,000 as scarp at the end of its working life. Other relevant data are as fol lows :
(i) Budgeted working hours are 2,592 based on 8 hours per day for 324 days. This includes 300 hours
for plant maintenance and 92 hours for setting up of plant.
( ii) Estimated cost of maintenance of the machine is Rs. 25,000 p.a.
(iii) The machine requires a special chemical solution, which is replaced at the end of each week (6
days in a week) at a cost of Rs. 400 each time.
(iv) Four operators control operation of 8 machines and the average wages per person amounts to Rs.
420 per week plus 15% fringe benefits.
(~) Electricity used by the machine during the production is 16 units per hour at a cost of Rs. 3 per uniL
No current is taken during maintenance and setting up.
( vi) Departn1ental and general works overhead allocated to the operation during last year was Rs. 50,000.
During the current year it is estimated to increase I0% of this atnount.
Calculate machine hour rate, if (a) setting up time is unproductive:
(b) setting up time is productive. [C.A. PE(£-//), May 2005)
Solution: COMPUTA TION OF MACl·UNE HOUR RATE
Per year Per hour \ Per hour
Rs. (unproductive) (productive)
Standing charges
Operators' wage-.'>
4 ., 420:. 54 90..720
4\cfcJ : f-nnge Benefits l 5% 13,608
J.04.328
Ovvo ttAos .. DrsT1u1vr,oH 121

I >cpanmtntaJ and ~enc,al

overhead
( 50.00 () 1- 5,()0()) 55.000
roL'll Srnndrng Charge~ for 8 machines I .59.32H
Cosf flCr Mach,ne J.5'1,328/8 19. 916
( ~ost per Ma,chtnc hour 90S
t <J. 9 I 6!2..200
I ').<J 16/2.292
X69
Machine hours
s~uing lfnle unproductive (2.592-300•92)
::: 2200
ScUtng lime productive (2,592-300) ca 2.292
'lath ine txp~ns~s
I >~predation 45 45
( 12. 70.000 - 70.000)/( 12 2.200)
J(

4).63
( 12.70.000 - 70.()()0)/ 12 ,, 2,292)
48,00
Elcctrkit)' ( f 6 " 3) 46.07
( HJ • 3 ., 2.200)/(2~92) 9,42
9.82
Special chemical solution
(400 ~ 54 )/2.20012.292
11,36
Maintenance Bour Rate 10.91
(25.00012.292) I JS.72
123.68
Machine Hour Rate=
1llustration 5.12. The following paniculars refer to process
used in the treatment ofa material subsequently
incorporated in a component ronn ing pan of an electr
ical appliance :
(a) The original cost of the machine used (purchased
in June 1999) was Rs. 10,000. Us estimated life is
1,000, and the estimated working time per year
IO years, the estimated scrap value at the end of its lifc is Rs,
(50 weeks of 44 hours) is 2.200 hours of which mach
ine maintenance, etc. is estimated to take up 200 hours.
estimated at I00 hours, is regarded as productive
No other loss of working time is expected. Setting up time
time. (Bank holidays are to be ignored). is 16 units per hour at a c-0st of 9 p. per unit. No
(h) Electricity used by the machine during production
current is taken during maintenance or setting up. ~
(c) The machine requires a chemical ~olution which
is replaced at the end of each week at a cost of Rs.
20 each time. 1,200.
(d) The estimated cost of maintenance per year is Rs.
(e) T,vo attendants control the operation of the mach ine together with five other identical machines.
1
s contributions to holiday pay amount to Rs. 120.
Their combjned weekly wages, insurance and the employer machine for the year 1999•2000 amount to
(/) Department and general works overheads allocated to this .
Rs. 2,000. sary to provide for recou prnen t of the costs of
You are required to calculate the machine-hour rate neces
op~. dting the machine.
Solution : IINE I IOUR RATE
COMPUT/\TJON OF M/\C:J
Rs. Rs. P.

Standing Charges per annum 2J)OO

(>vcrheads
Rs. J20 x 50] 1.000
Wages of' ,ittcndants [ 6
3,000
Total Stunding Charges
I fourly 1iatc of St,mdmg 1..50
Charges ( R~. J.(J00/2.000)
Machine f.iptn se, per hour
J0. (>{JO - l. 000 ] 45
Deprcc1ntion [ 2. OOO ;, 10
222 OVf RHE AOS -OJ STR IBU TI0. N

.60
Repa1•rs & Ma1ntcnance [ 1,.200]
2,000
20 X 50] .so
Chemiicals [ _
2 000

L 900 x 16 x 9] 1.37
[
Power 2. 000 x I 00 4.4 2
Mac hine -hou r Rate
\Vorking Not e: Hrs.
Effective Machine Hours : 2~200
AnnuaJ Working Hours 200
les. s: required for maintenance
2,,000