Page 187 - DCOM202_COST_ACCOUNTING_I

Unit 9: Absorption of Overheads

Solution: Notes

Computation of Machine Hour Rate
Particulars Amount (`)
(A) Standing Charges:
Rent and Rates per machine (` 4,830 ÷ 5 machines) 961
Lighting charges in shop per machine (` 540 ÷ 5) 108
Attendants salary per machine (` 60 × 2 × 12 ÷ 5) 288
Supervision per machine (` 250 × 12 ÷ 5) 600
Sundry supplies per machine (494 ÷ 5) 90
Hire-purchase interest per machine (` 300 ÷ 5) 60
Total Standing Charges 2,116
Hourly Rate for Standing Charges
(` 2,116 ÷ 1,200 hours) = 1.76 1.76
(B) Hourly Machine Expenses:
Depreciation (` 500 ÷ 1,200 hours) 0.42
Repairs and Maintenance (` 200 ÷ 1,200 hours) 0.17
power (` 750 ÷ 1,200 hours) 0.62
Machine Hour Rate 2.97

Notes It is objected to include higher-purchase installment and interest in computing
machine-hour rate, as these are matters of financial nature. Thus, excluding ` 60 towards
hire-purchase, the machine-hour rate would be ` 1.92.

Working notes:
(a) Working hours of the machine have been calculated as under:
` 1 is incurred for consuming 16 units of power.
` 3,750 will have to incur for consuming
(` 3,750 × 16 units) 60,000 units.

But, these 60,000 units are for all the five machines.
Power consumption per machine = 60,000 units ÷ 5 = 12,000 units
Since, machine consumes 10 units per hour
The number of machine-hours worked during the year

= 12,000 units ÷ 10 units per hour
= 1,200 hours.
(b) Hourly rate of power consumption is calculated as follows:
power consumption per machine during the year
= ` 3,750 ÷ 5 = ` 750.

Hourly power consumption by the machine during the year
= ` 750 ÷ 12,000 hours = ` 0.62

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