Machine hour rate method
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The machine hour rate is a method for allocating overhead costs based on machine hours. It is calculated by dividing the total overhead costs by the total expected machine hours. Overhead costs that are allocated this way include depreciation, rent, utilities, maintenance, wages, and more. The machine hour rate breaks costs into standing charges that are fixed and machine charges that are variable based on machine usage. This method allows companies to measure machine efficiency, track idle time, and estimate costs.
Machine hour rate method
- 2. Meaning • “The Machine Hour Rate is an actual or predetermined rate of cost apportionment for overhead absorption”
- 3. 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
- 4. 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.
- 5. Presentation/Computation • Standing Charges • Machine Charges
- 6. 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
- 7. Machine Expenses • Depreciation on Machine • Power Expenses • Repairs & Maintenance
- 8. 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