Page 81 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Cost and Management Accounting

Notes Solution:

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
(B) Hourly Rate for Standing Charges
(` 2,116 ÷ 1,200 hours) = 1.76 1.76
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
2.97
Note: It is objected to include higher-purchase installment and interest in computing machine-
hour rate, as these are matters of fi nancial 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 fi ve 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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