After reading this chapter, you will be able to understand:
Overhead rates
Absorption of overheads
Machine hour rate
For a proper understanding of the topic, overheads are split into overhead analysis and overhead rates. In overhead rates, the calculations done are cost per unit, cost per hour, cost per machine or cost per machine hour rate (MHR). These rates are calculated to find out the method of recovery of overheads.
Overhead rates are fixed in order to absorb the overhead to cost units on equitable basis.
Charging of overheads to specific product is known as absorption. Overhead absorption is also known as application of overheads. In other words, absorption refers to charging of overheads of a department to different cost units in a way that each cost unit bears an appropriate portion of its share of overheads.
Absorption of overheads is done in the following ways.
Generally, overheads are charged on the basis of actual rate or estimated rate. When overheads are charged on actual rate, then there is no difference between the charged and incurred overheads. But when overheads are charged on estimated rate, there is a difference between the charged and incurred overheads. Such difference is known as underabsorption or overabsorption.
Absorption of overhead using predetermined rate may cause either underrecovery or overrecovery of overheads. If the actual overheads work out to be different from the budgeted overheads or if the actual base becomes different from the budgeted base, this results in either underrecovery or overrecovery.
Underabsorption– If the amount estimated is less than the amount actually incurred, it is said to be underabsorption. In other words, if the amount applied is the shortfall of the actual overhead in production, it is said to be the underabsorption of overheads.
The over or underabsorption of overheads is termed as overhead variance.
When the overheads charged is less than the overheads incurred, it is known as underabsorption, that is, estimated overheads are less than the actual overheads.
Overabsorption– If the amount estimated is more than the amount actually incurred, it is said to be overabsorption. In other words, if the amount applied exceeds, the actual overhead, it is said to be an overabsorption of overheads. When the overheads charged is more than the overheads incurred, it is known as overabsorption, that is, estimated overheads are more than the actual overheads.
Overabsorption = Actual expenses < estimated/absorbed expenses
Causes of under or overabsorption of overheads
Methods of absorption of overheads
Effectively working hours = Number of average workers employed during a period Number × of hours for which the factory works durinng each day
While calculating effective working hours of the factory, normal idle time must be considered.
Overheadsofmachine x = Rs5,000
No. of machine hours = 2,500
This is one of the most scientific methods for the absorption of factory overheads. However, this method is not applicable in the case of limited operation of machines.
There are two methods of calculating MHR. They are (a) ordinary MHR and (b) composite MHR.
Only the indirect expenses that are directly connected with the running of the machine are considered. For example, depreciation, power, repairs and maintenance, oiling and insurance cleaning are considered.
In addition to the indirect expenses, other expenses such as supervisory labour, rent, lighting and heating are also included, and a composite rate is set up covering both the type of expenses.
Bases for the appointment of expenses for the computation of MHR
Expenses | Bases |
---|---|
1. Consumable stores | Store requisition slips |
2. Depreciation | Value of machines |
3. Insurance | Value of machines and assets |
4. Lighting and heating | No. of points or floor area |
5. Power | Horse power of machines |
6. Repairs | Value of machines |
7. Rent and rates | Floor area occupied |
8. Supervision | Time spent on each machine |
Illustration 1
Calculate the MHR for machine no. 33 from the following particulars.
Cost of machine | Rs 10,000 |
Estimated scrap value | Rs 250 |
Estimated working life | 15,000 hours |
Working hours per year | 2,000 hours |
Cost of repairs per year | Rs 1,500 |
Wages of operator per month | Rs 150 |
Chemical per month | 100 |
Overheads chargeable to this machine per month | Rs 200 |
Power per hour | 20 units at 7 paise per unit |
No. of operators looking after 4 machine | 2 persons |
Note: The MHR is a comprehensive MHR since operator's wages are included.
Solution: Computation of MHR
Illustration 2
A machine costing Rs 20,000 is expected to run for 10 years. At the end of 10 years, its scrap value is estimated to be Rs 2,000. Its installation charges are Rs 200.
Estimated cost of repairs for a 10-year life | Rs 1,800 |
No. of hours the machine is expected to run in a year | 2,190 |
Its power consumption would be 15 units per hour | Rs 5 per 100 units |
The machine occupies ¼th of the area of the department and has 2/10 points for lighting.
The foreman has to spend about one-third of his time to this machine.
The rent for the department | Rs 300 per month |
The charges for lighting | Rs 80 per month |
Salary paid for the foreman | Rs 960 per month |
Find out the hourly rate, assuming insurance is at 1% per annum and expenses on oil etc. are Rs 9 per month.
Solution: Computation of MHR
Illustration 3
Calculate the MHR for the recovery of overheads for a group of three machines from the following data.
Original cost of three machines | Rs 60,000 |
Depreciation at 10% per annum (straight line method) | |
Repairs and average maintenance cost | Rs 20 per day |
Power | 30 paise per running hour per machine |
Supervision for the group of machines | Rs 1,200 per month |
Allocation of rent for three machines on a floor area basis | Rs 160 per month |
Share of manufacturing overheads | Rs 300 per month for the group of machines |
No. of working days | 300 in a year |
Normal operation | 1 shift of 8 hours |
Normal allowance for repairs, maintenance, change over, idle time etc. | 10% |
Effective running hours per annum (300 × 8 × 90/100) | 2,160 |
Solution: Computation of MHR
Illustration 4
The following annual charges are incurred in respect of a machine in a shop where manual labour is almost nil and work is done by means of five machines of exactly same type of specification.
Rent and rates (proportional to the floor space) for the shop | Rs 6,000 | |
Depreciation on each machine | 1,000 | |
Repairs and maintenance for the five machines | 1,200 | |
Power consumed (as per meter) at 5 paise per unit for the shop | Rs 3,000 | |
Electric charges for lights used in the shop | Rs 600 | |
Attendants: There are two attendants for the five machines and they are each paid Rs 80 per month | ||
Supervision: For the five machines in the shop there is one supervisor whose emoluments are Rs 300 per month | ||
Sundry supplies for the shop | Rs 500 | |
Hire purchase installments payable for the machine (including Rs 300 as interest) | Rs 1,200 |
The machine uses 10 units of power per hour. Calculate the MHR for the machine for the year.
Solution: Computation of MHR
Particulars | Rs (per annum) | Per hour |
---|---|---|
Standing charges | ||
Rent and rates (6,000 × 1/5) | 1,200 | |
Lighting charges (600 × 1/5) | 120 | |
Attendants’ salary (80 × 2 × 12 × 1/5) | 384 | |
Supervision (300 × 12 × 1/5) | 720 | |
Sundry supplies (500 × 1/5) | 100 | |
Total standing charges | 2,524 | 2.10 |
Machine expenses | ||
Depreciation (1,000/1,200) | 0.83 | |
Repairs and maintenance (1,200 × 1/5 × 1/1,200) | 0.20 | |
Power 10 units at 0.05 per unit (10 × 0.05) | 0.50 | |
Machine hour rate | 3.63 |
Working Notes:
Total amount of power consumed = Rs 3,000
Rate of power = 0.50 per unit
Total working hours = 3,000/0.50 = 6,000 hours
No. of machines = 5
Hours per machine = 6,000/5 = 1,200 hours per annum
Illustration 1
A machine shop has 8 identical drilling machines manned by 6 operators. The machines cannot be worked without an operator wholly engaged on it. The original cost of all these 8 machines works out to be Rs 8,80,000. These particulars are furnished for a 6-month period
Normal available hours per month | 208 |
Absenteeism (without pay) hours | 18 |
Leave (with pay) hours | 30 |
Wages for 8 hours | Rs 20 |
Production bonus estimated 15% on wages | |
Value of power consumed | Rs 8,050 |
Supervision and indirect labour | Rs 3,300 |
Lighting and electricity | Rs 1,200 |
These particulars are for a year |
Repairs and maintenance including consumables of 3% on the value of a machine.
Insurance | Rs 50,000 |
Depreciation | 10% on original cost |
Other sundry works expenses | Rs 18,000 |
General management expenses allocated | Rs 60,000 |
You are required to work out comprehensive MHR for the machine shop.
Solution: Computation of comprehensive MHR of machine shop.
Working Notes:
Problem 1. A department is having three machines. The figures below indicate the departmental expenses. Calculate the MHR in respect of three machines from the information given below
Rs | |
Depreciation of machinery | 24,000 |
Depreciation of building | 5,760 |
Repairs of machinery | 8,000 |
Insurance of machinery | 1,600 |
Indirect wages | 12,000 |
Power | 12,000 |
Lighting | 1,600 |
Miscellaneous expenses | 8,400 |
73,360 |
[Chennai, M. Com., September 1985]
[Ans: Overhead apportioned—Machine 1 = Rs 28,612, Machine 2 = Rs 19,454, Machine 3 = Rs 25,294; MHR—Machine 1 = Rs 143.06, Machine 2 = Rs 64.85; Machine 3 = Rs 84.31; Composite or comprehensive MHR—Machine 1 = Rs 155.06, Machine 2 = Rs 80.85, Machine 3 = Rs 100.31 (including direct wages of machines)]
Hint: Apportion indirect wages on direct wages basis and miscellaneous expenses on hours worked basis.
Illustration 2
Rs | |
Rent | 50,000 |
Heat and light | 20,000 |
Supervision | 1,30,000 |
Machine area: 3,000 square metres
Solution: (A) Computation of comprehensive MHR
Note: It is assumed that there is no power cost when the machine is being set or adjusted.
(B) If the MHR as calculated in (A) is adopted, the overheads absorbed over the various jobs will be as follows:
Job no. 605 = 18.47 × 80 = Rs 1,478
Job no. 595 = 18.47 × 70 = Rs 1,293
Problem 2. Calculate the MHR from the following particulars of machine no. 33
Rs | |
---|---|
Cost of machine | 10,000 |
Estimated scrap value | 250 |
Estimated working life | 15,000 hours |
Working hours per year | 2,000 hours |
Cost of repairs per year | 1,500 |
Wages of operator per month | 150 |
Chemical per month | 100 |
Overheads chargeable to this machine per month | 200 |
Power per hour | 20 units at 7 paise per unit |
No. of operators looking after four machines | 2 persons |
[Chennai, B.Com., March 1997]
[Ans: MHR = Rs 4.45]
Note: The MHR is a comprehensive MHR since operator's wages are included.
Illustration 3
A machine costs Rs 1,00,000 and is deemed to have a scrap value of 5% at the end of its effective life (19 years). Ordinarily, the machine is expected to run 2,400 hours per annum, but it is estimated that 150 hours will be lost for normal repairs and maintenance and further 750 hours will be lost due to staggering. The other details in respect of the machine shop are as follows
Rs | |
---|---|
Wages, bonus and provident fund, contribution of each of two operators (each operator is in charge of two machines) | 6,000 per year |
Rent and rates of the shop | 4,500 per year |
General lighting of the shop | 250 per month |
Insurance premium for the machine | 200 per quarter |
Cost of repairs and maintenance per machine | 250 per month |
Shop supervisor's salary | 500 per month |
Power consumption of the machine hour 20 units | |
Rate of power per hundred units = Rs 10 | |
Other factory overheads attributable to the shop = 5,000 per year |
There are 4 identical machines in the shop. The supervisor is expected to devote one-fifth of his time for supervising the machine. Compute a comprehensive MHR from the above details.
Solution: Computation of MHR
Problem 3. A manufacturing company has two production departments X and Y and three service departments—timekeeping, stores and maintenance. The departmental summary showed the following expenses for October.
Production department | Rs | Rs |
---|---|---|
X | 16,000 | |
Y | 10,000 | 26,000 |
Service department: | ||
Timekeeping | 4,000 | |
Stores | 5,000 | |
Maintenance | 3,000 | |
12,000 | ||
38,000 |
The other information are as follows:
You are required to make departmental allocation of expenses.
[B.Com., Madurai]
[Ans: X = Rs 22,845; Y = Rs 15,155]
Illustration 4
Calculate the MHR for the recovery of overheads for a group of 3 machines from the following data.
Original cost of 3 machines | Rs 60,000 |
Depreciation at 10% per annum (straight line method) | |
Repairs and maintenance cost average | Rs 16 per day |
Power | 30 paise per running hour per machine |
Supervision for the group of machines | Rs 1,000 per month |
Allocation of rent for 3 machines on a floor area basis | Rs 240 per month |
Share of manufacturing overheads | Rs 400 per month for the group of machines |
Normal working days | 300 in a year |
Normal operation | 1 shift of 8 hours |
Normal allowance for repairs, maintenance, change over, idle time etc. | 20% |
Solution: Computation of MHR
Problem 4. A company has four departments A, B, C, which are production departments, and D, which is a service department. Costs of the department D are apportioned on the basis of the wages paid.
The actual costs for the year were as follows:
Rent | Rs 21,000 |
Repairs to plant | Rs 1,26,000 |
Depreciation of plant | Rs 9,450 |
Light and power | Rs 2,100 |
Supervision | Rs 31,500 |
Repairs to building | Rs 8,400 |
The following information about the departments is available and is used as a basis for the distribution of costs.
These costs are apportioned to production departments.
[Ans: A = Rs 1,08,547.50, B = Rs 83,220.50, C = Rs 48,682.00]
Illustration 5
A factory works on an average for 168 hours in a month. There are four machines in the factory for which the necessary particulars are provided:
The monthly charges for rent and taxes for the entire factory are Rs 16,500. One foreman supervises all these four machines and his salary is Rs 2,520 per month. An attendant looks after all these four machines and his salary is Rs 250 per month.
In the execution of certain work, Machine 1 is used for 84 hours, Machine 2 for 72 hours, Machine 3 for 100 hours and Machine 4 for 120 hours. The cost of materials is Rs 1,79,650 and that of direct labour is Rs 3,350. Calculate the cost of the work order.
Problem 5. Following figures have been extracted from the accounts of a manufacturing concern for the month of January
Rs | |
---|---|
Indirect Materials: | |
Production department X | 950 |
Production department Y | 1,200 |
Production department Z | 200 |
Maintenance department P | 1,500 |
Stores department Q | 400 |
Indirect wages: | |
Production department X | 900 |
Production department Y | 1,100 |
Production department Z | 300 |
Maintenance Department P | 1,000 |
Stores department Q | 650 |
Power and Light | 6,000 |
Rent and Rates | 2,800 |
Insurance on assets | 1,000 |
Meal charges | 3,000 |
Depreciation at 6% on capital value of assets.
From the following additional information, calculate the share of overheads of each production department.
[B.Com., Chennai]
[Ans: A, Rs 9,000; B, Rs 9,600; C, Rs 4,400]
Illustration 6
The following annual charges are incurred in respect of a machine in a shop where manual labour is almost nil and work is done by means of five machines of exactly same type of specification.
Rs | ||
---|---|---|
(i) Rent and rates (proportional to the floor space) for the shop | 5,500 | |
(ii) Depreciation on each machine | 1,500 | |
(iii) Repairs and maintenance for the five machines | 1,000 | |
(iv) Power consumed (as per meter) at 5 paise per unit for the shop | 3,000 | |
(v) Electric charges for light in the shop | 1,000 | |
Attendants: There are two attendants for the five machines, and they are each paid Rs 60 per month | ||
(vii) Supervision: For the five machines in the shop, there is one supervisor whose emoluments are Rs 300 per month | ||
Sundry supplies for the shop | 600 | |
Hire purchase instalments payable for the machine (including Rs 300 as interest) | 1,200 |
The machine uses 10 units of power per hour. Calculate the MHR for the machine for the year.
Solution: Computation of MHR for the year
Note: (1) Calculations are made up to the fourth decimal to minimise the effect of approximations.
Note: (2) When attendants’ salary or wages is also included in the calculation, the MHR is called ‘comprehensive MHR’ or ‘composite MHR’.
Working Note: Annual working hours per machine
Total amount of power consumed = Rs 3,000
Rate of power = 0.50 per hour
No. of machines = 5
Problem 6. A machine costing Rs 20,000 is expected to run for 10 years, at the end of which its scrap value is estimated to be Rs 2,000. Its installation charges are Rs 200
Repairs for 10 years’ life is estimated to be | Rs 1,800 |
The machine is expected to run for 2,190 hours in a year | |
Its power consumption would be 15 units per hour | Rs 5 per 100 units. |
The machine occupies ¼th of the area of the department and has 2/10 points for lighting.
The foreman has to spend about one-third of his time for this machine.
The rent for the department is | Rs 300 per month |
The charges for lighting are | Rs 80 per month |
The foreman is paid a salary of | Rs 960 per month |
Find out the hourly rate, assuming insurance is at 1% per annum and expenses on oil etc. are Rs 9 per month.
[B.Com. Hons., Delhi]
[Ans: Rs 4.056]
Illustration 7
The following figures have been extracted from the books of a manufacturing company. All jobs pass through the company's two departments.
Working department (Rs) | Finishing department (Rs) | |
---|---|---|
Materials used | 9,000 | 400 |
Direct labour | 4,500 | 1,200 |
Factory overheads | 1,800 | 1,200 |
Direct labour hours | 14,000 | 6,000 |
Machine hours | 12,000 | 1,000 |
The following information relates to Job no. 17.
Working department (Rs) | Finishing department (Rs) | |
---|---|---|
Materials used | 120 | 10 |
Direct Labour | 65 | 25 |
Direct Labour Hours | 265 | 70 |
Machine Hours | 255 | 25 |
You are required (a) to enumerate four methods of absorbing factory overheads by jobs showing the rates for each department under the methods quoted and (b) to prepare a statement showing the different cost results for job no. 17 under each of four methods referred to.
Solution:
Comparative statement of job no. 17 for working department
Comparative statement of job no. 17 for finishing department
Rent for the quarter | Rs 17,500 |
Depreciation per annum | Rs 2,00,000 |
Indirect charges per annum | Rs 1,50,000 |
During the first month of operation, the following details were taken from the job register.
You are required to compute the MHR:
Solution:
Machine hours per month (1,000 + 1,500 + 1,000) | 3,500 |
When the computer was used (400 + 600 + 1,000) | 2,000 |
The machine overheads per month: Rent (17,500/4) | 4,375 |
Depreciation (2,00,000/12) | 16,667 |
Indirect charges (15,00,000/12) | 12,500 |
33,542 | |
Computer hire charges (4,20,000 × 12) | 35,000 |
Overhead per month for the machine with Computer overhead for the machine | |
Hire charges for the month | 35,000 |
54,167 |
MHR when the computer not used:
MHR when the computer not used:
MHR for individual jobs
(a) Wages, bonus and provident fund contribution of each of the two operators (each operator is in charge of two machines) | Rs 6,000 |
(b) Rent and rates of the shop | Rs 3,000 per annum |
(c) General lighting of the shop | Rs 250 per month |
(d) Insurance premium for the machine | 200 per month |
(e) Cost of repairs and maintenance per machine | 250 per month |
(f) Shop supervisor's salary | 500 per month |
(g) Power consumption of the machine would be 20 units per hour, rate of power per 100 units | Rs 10 |
(h) Other factory overhead attributable to shop | Rs 4,000 per annum |
There are four identical machines in the shop. The supervisor is expected to spend one-fifth of his time for supervising machines. Compute a comprehensive MHR from the above details:
Solution:
Machine hour rate
Standing charges per annum per machine:
Rent rates | 750 |
General lighting | 750 |
Insurance | 800 |
Supervisor's salary | 300 |
Allocated overhead | 1,000 |
Standing charges per machine hour | 3,600/1,500 |
= 2.4 | |
Variable charges: | |
Wages (6,000/2) | 3,000 |
Power | 3,000 |
Repairs and maintenance | 3,000 |
Depreciation | 4,500 |
13,500/1,500 | |
Variable charges per machine hour | = 9 |
MHR | = 2.4 + 9 |
= 11.40 |
Total working hours available per week: 48 hours |
Operator's wages (per month): 650 |
Supervisor's salary (per month, common supervisor for three machines): 1,500 |
Written Down Value of machine (depreciation at 10% plus 2% on an average for extra shift allowance: 1,80,000 |
Repairs and maintenance (per annum): 16,000 |
Consumable stores (per annum): 30,000 |
Rent, rates and taxes (for the quarter apportioned): 5,000 |
Power consumed at 15 units per hour at 40 paise per unit. Power required for productive hours only. Setting up time is part at productive time, but no power is required for setting up jobs. The operators and supervisors are permanent. Repairs and maintenance and consumable stores are variable.
You are required to:
Solution: Computation of MHR
Rent, rates and taxes | Rs 5,000 |
Supervision | Rs 1,500 |
Operator's wages | Rs 1,950 |
Total outstanding charges | Rs 8,450 |
Effective hours (46 × 13) | 598 |
Fixed costs per hour (8,450/598) | Rs 14.13 |
Variable cost per hour:
Power | 5.74 | |
Repairs = (4,000/598) | 6.69 | |
Consumable stores (7,500/598) | 12.54 | |
Depreciation | 9.03 | 34.00 |
48.13 |
(b) Quotation for outside parties:
Variable cost per hour | 34.00 |
Add : 20% profit | 6.80 |
Minimum to be quoted | 40.80 |
Solution: Computation of MHR
Machine expenses: | |
---|---|
Cost of machine | Rs 24,00,000 |
Customs duty, Insurance and freight | Rs 11,00,000 |
Installation expenses | Rs 3,00,000 |
Cost of machine room | Rs 3,00,000 |
Cost of air conditioning of the machine room | Rs 2,00,000 |
Total cost | Rs 43,00,000 |
Depreciation per annum at 10% | Rs 4,30,000 | 199.07 |
Cost of electricity | 11.00 | |
Cost of tools | Rs 2,00,000 | 92.59 |
Standing charges: | ||
Salaries | Rs 2,00,000 | |
Interest @ 12% p.a. on total capital investment including cost of tools i.e. on Rs 47,00,000 | Rs 5,64,000 | |
Consumption stores | Rs 60,000 | |
Other expenses | Rs 5,00,000 | ______ |
Rs 13,24,000 | 613.00 |
Cost per hour standing charges = Rs 915.66
MHR (1,32,400/2,160)
Expected life of the machine: 10 years |
Scrap value at the end of the 10 years: Rs 5,000 |
Repairs and maintenance for the machine during the year: Rs 2,000 |
Expected number of working hours of the machine per year: 4,000 hours |
Insurance premium annually for the machines: Rs 4,500 |
Electricity consumption for the machine per hour at 75 paise per unit: 25 units |
Area occupied by one machine: 100 sq. ft. |
Area occupied by other machine: 1,500 sq. ft. |
Rent per month of the department: Rs 800 |
Lighting charges for 20 points for the whole department, out of which three points are for the machine: Rs 120 per month |
Compute the MHR for the two machines on the basis of the data given above.
Solution: Computation of MHR
Standing charges | Rs (per annum) | Per hour |
---|---|---|
Insurance premium | 300 | |
Repairs and maintenance | 2,000 | |
Rent | 600 | |
Light charges | 216 | |
Total | 3,116 | |
Hourly rate for standing charges (3,116/4,000) | 0.779 |
Machine expenses
Depreciation (1:1) | 12.375 |
Electricity consumption: | |
25 units per hour at Re 0.75 per unit | 18.750 |
MHR | 31.904 |
Working Notes:
Cost of the new machine | 5,00,000 |
Less: scrap value | 5,000 |
4,95,000 |
Total cost of all the machines | = 75,00,000 |
Total insurance premium paid for all the machines | = 4,500 |
Total annual insurance premium of the new machine |
Rent paid per annum | 9,600 |
Total area occupied | 1,600 sq.ft. |
Rent for the area occupied by the New machine (100 sq. ft.) | |
600 |
Total annual light charges of 20 points for the whole department is Rs 1,440.
Cost of machine | Rs 10,000 |
Estimated scrap value | Rs 250 |
Estimated working life | 15,000 hours |
Working hours per year | 2,000 hours |
Cost of repairs per year | Rs 1,500 |
Wages of operator per month | Rs 150 |
Chemical per month | Rs 100 |
Overheads chargeable to this machine per month | Rs 200 |
Power per hour | 20 units at 7 paise per unit |
No. of operators looking after four machines | 2 persons |
Note: The MHR is a comprehensive MHR since operator's wages are included.
Solution: Computation of MHR
Particulars | Rs (per annum) | Per hour |
---|---|---|
Standing charges: | ||
Repairs | 1,500 | |
Wages 150 × 12 = 1,800 × 2/4 | 900 | |
Chemical (100 × 12) | 1,200 | |
Overhead (200 × 12) | 2,400 | |
Total standing charges | 6,000 | 3.00 |
Running charges: | ||
Depreciation | 0.65 | |
Power (20 × 0.7) | 1.40 | |
MHR | 5.05 |
Repairs for 10 years’ life is estimated to be | Rs 1,800 |
The machine is expected to run for 2,190 hours in a year | |
Its power consumption would be 15 units per hour | Rs 5 per 100 units. |
The machine occupies one-fourth of the area of the department and has 2/10 points for lighting.
The foreman has to spend about one-third of his time for this machine.
The rent for the department is | Rs 300 per month |
The charges for lighting are | Rs 80 per month |
The foreman is paid a salary of | Rs 960 per month |
Find out the hourly rate, assuming insurance is at 1% per annum and expenses on oil etc. are Rs 9 per month.
Solution: Computation of MHR
Particulars | Rs (per annum) | Per hour |
---|---|---|
Standing charges: | ||
Repairs (1,800/10) | 180 | |
Rent (300 × 12 × ¼) | 900 | |
Lighting (80 × 12 × 2/10) | 192 | |
Salary of foreman (960 × 12 × 1/3) | 3,840 | |
Insurance (20,200 × 1%) | 202 | |
Total standing charges | 5,314 | 2.43 |
Running charges: | ||
Oil expenses | 0.05 | |
Power (15 × 5/100) | 0.75 | |
Depreciation (20,000 + 200–2,000/10) = 1,820/2,190 | 0.83 | |
MHR | 4.06 |
Original cost of 3 machines | Rs 60,000 |
Depreciation at 10% per annum (straight line method) | |
Repairs and maintenance cost average | Rs 20 per day |
Power | 30 paise per running hour per machine |
Supervision for the group of machines | Rs 1,200 per month |
Allocation of rent for 3 machines on a floor area basis | Rs 160 per month |
Share of manufacturing overheads | Rs 300 per month for the group of machines |
Normal working days | 300 in a year |
Normal operation | 1 shift of 8 hours |
Normal allowance for repairs, maintenance, change over, idle time etc. | 10% |
Solution:
Effective running hours per annum (300 × 8 × 90/100) = 2,160
Computation of MHR
Particulars | Rs (per annum) | Per hour |
---|---|---|
Standing charges: | ||
Supervision (1,200 × 12 × 1/3) | 4,800 | |
Manufacturing overheads (300 × 12 × 1/3) | 1,200 | |
Rent (160 × 12 × 1/3) | 640 | |
Total standing charges | 6,640 | 3.07 |
Running charges: | ||
Power | 0.30 | |
Depreciation | 0.93 | |
Maintenance | 0.93 | |
MHR | 5.23 |
(i) Rent and rates (proportional to the floor space) for the shop | Rs 6,000 |
(ii) Depreciation on each machine | Rs 1,000 |
(iii) Repairs and maintenance for the five machines | Rs 1,200 |
(iv) Power consumed (as per meter) at 5 paise per unit for the shop | Rs 3,000 |
(v) Electric charges for light in the shop | Rs 600 |
(vi) Attendants: There are two attendants for the five machines, and they are each paid Rs 80 per month. | |
(vii) Supervision: For the five machines in the shop, there is one supervisor whose emoluments are Rs 300 per month. | |
(viii) Sundry supplies for the shop is Rs 500. | |
(ix) Hire purchase instalments payable for the machine (including Rs 300 as interest) is Rs 1,200. |
The machine uses 10 units of power per hour. Calculate the MHR for the machine for the year.
Solution: Computation of MHR
Particulars | Rs (per annum) | Per hour |
---|---|---|
Standing charges: | ||
Rent and rates (6,000 × 1/5) | 1,200 | |
Lighting charges (600 × 1/5) | 120 | |
Attendants salary (80 × 2 × 12 × 1/5) | 384 | |
Supervision (300 × 12 × 1/5) | 720 | |
Sundry supplies (500 × 1/5) | 100 | |
Total standing charges | 2,524 | 2.10 |
Machine expenses | ||
Depreciation (1,000/1,200) | 0.83 | |
Repairs & maintenance (1,200 × 1/5 × 1/1,200) | 0.20 | |
Power 10 units @ 0.05 per unit (10 × 0.05) | 0.50 | |
MHR | 3.63 |
Working Notes:
Total amount of power consumed = Rs 3,000
Rate of power = 0.50 per unit
Total working hours = 3,000/0.50 = 6,000 hours
No. of machines = 5
Hours per machine = 6,000/5 = 1,200 hours per year
This chapter primarily deals with MHR, in which depreciation plays a vital role. It is to be understood that the machine continues to depreciate as the time pass by. The more the asset is used, the more the depreciation is caused. While calculating depreciation, two factors are considered: time factor and usage factor, or both.
Objective-Type Questions
I. State whether the following statements are true or false:
[Ans: 1, false; 2, true; 3, false; 4, false; 5, true; 6, true; 7, true; 8, false; 9, true; 10, false]
II. Choose the Correct Answer:
Ans: (b)
Ans: (a)
Ans: (d)
Ans: (a)
Ans: (a)
Ans: (d)
Ans: (d)
Ans: (b)
Ans: (c)
Ans: (d)
Short Answer-Type Questions
Essay-Type Questions
Cost of machine | Rs 16,000 |
Estimated scrap value | Rs 1,000 |
Effective working life | 10,000 hours |
Running time per 4 weekly period | 160 hours |
Average cost of repairs and maintenance per 4 weekly period | Rs 120 |
Standing charges allocated to Machine A per 4 weekly period | Rs 40 |
Power used by the machine | 4 units per hour at a cost of 5 paise per unit |
[Chennai, 1996]
[Ans: MHR = Rs 2.70]
(1) Cost of the machine | Rs 19,200 |
(2) Estimated scrap value | Rs 1,200 |
(3) Average repairs and maintenance | Rs 150 p.m. |
(4) Standing charges allocated | Rs 50 p.m. |
(5) Effective working life of the machine | 10,000 hours |
(6) Running time per month | 166 hours |
(7) Power used by the machine; 5 units per hour at 20 paise per unit |
[B.Com., Punjab]
[Ans: Rs 4]
Cost of machine | Rs 95,000 |
Installation charges | Rs 10,000 |
Scrap value after 10 years | Rs 5,000 |
Working hours per month | 200 hours |
Lighting | Rs 150 per month |
Rent | Rs 200 per month |
Insurance premium | Rs 500 per year |
Repair charges | 50% of depreciation |
Other standing charges | Rs 1,000 per month |
Power, 10 units per hour at | Rs 10 per 100 units |
[Chennai, 1998]
[Ans: MHR = Rs 14.205 (or) 14.21]
Electric power: 75 paise per hour | Repairs: Rs 530 per annum |
Steam: 10 paise per hour | Rent: Rs 270 per annum |
Water: 2 paise per hour | Running hours: 2,000 per annum |
Original cost of machine: Rs 12,500 | Book value: Rs 2,870 |
Present replacement value: Rs 11,500 | Depreciation: per annum |
[Ans: Rs 1.75]
(a) Cost of machine | Rs 12,000 |
(b) Average repairs and maintenance charges per month | Rs 150 |
(c) Estimated scrap value | Rs 1,200 |
(d) Standing charges allocated to machine per month | Rs 50 |
(e) Effective working life of machine | 10,000 hours |
(f) Running time per month | 166 hours |
(g) Power used by machine | 5 units per hour at 19 paise per unit |
[Chennai, 1989]
[Ans: MHR = Rs 3.23 (approx.)]
Cost of the drilling machine | Rs 42,000 |
Estimated scrap value | Rs 2,000 |
Estimated working life | 10 years of 2,000 hours each |
Running time for a 4-week period | 150 hours |
Estimated repairs for life | Rs 10,000 |
Standing charges allocated to this machine for a 4 week | Rs 300 |
Power consumed per hour | 5 units at 10 paise per unit |
[B.Com., 1980]
[Ans: Rs 5.00]
Cost | Rs 58,000 |
Estimated scrap value | Rs 3,000 |
Estimated working life | 20,000 hours |
Estimated cost of maintenance for whole life (machine) | Rs 12,000 |
Power used for machine | Rs 1 per hour |
Rent per month (10% for this machine) | Rs 1,500 |
Normal machine running hours during a month: | 180 |
Standing charges other than rent, rates etc. per month | Rs 200 |
[I.C.W.A. Inter]
[Ans: Rs 6.29]
Cost of machine | Rs 58,000 |
Estimated scrap value | Rs 3,000 |
Estimated working life | 20,000 hours |
Estimated cost of maintenance during working life of machine | Rs 12,000 |
Power used | Re 1 per hour |
Rent & Rates per month (10% should be charged to this machine) | Rs 1,500 |
Normal machine running hours during a month | 180 hours |
Standing charges per month | Rs 200 |
[Chennai, 1983]
[Ans: MHR Rs 6.294 (or) Rs 6.29]
Cost of machine | Rs 1,600 |
Estimated scrap value | Rs 100 |
Effective working life | 10,000 hours |
Running time per 4 weekly period | 160 hours |
Average cost of repairs and maintenance charges per four-weekly period | Rs 12.00 |
Standing charges allowed to Machine A per four-weekly period | Rs 4.00 |
Power used by machine | 4 units per hour at a cost of 0.35 paise per unit |
[B.Com., Andhra Pradesh]
[Ans: Rs 1.66]
Cost of machine | Rs 1,050 |
Estimated scrap value | Rs 50 |
Effective working life | 20,000 hours |
Running time in 4 weekly periods | 150 hours |
Weekly amount payable under maintenance agreement covering all repairs | Rs 7.50 |
Standing charges allocated to machine per 4 weekly periods | Rs 6.00 |
Power used by machine | 5 units per hour at 6 paise per unit |
[Chennai, 1990]
[Ans: MHR = Re 0.59]
Cost of the machine | Rs 2,00,000 |
Installation charges | Rs 20,000 |
Estimated scrap value after expiry of its life of 15 years | Rs 10,000 |
Rent for the shop | Rs 400 per month |
General lighting for the shop | Rs 600 per month |
Insurance premium for the machine | Rs 1,920 per annum |
Repairs expenses | Rs 2,000 per annum |
Power 10 units per hour | |
Rate of power per 100 units | Rs 40 |
Estimated working hours | 2,000 per annum |
Shop supervisor's salary | Rs 1,200 per month |
The machine occupies one-fourth of the area of the shop.
The supervisor spend one-third of his time for this machine.
[B.Com., Osmania]
[Ans: Rs 16.86]
Cost of the machine | Rs 40,000 |
Estimated life | 15 years of 1,800 hours per year |
Estimated scrap value | Rs 2,500 |
Estimated repairs for whole life | Rs 10,500 |
Power consumed per hour 15 units at | 0.07 paise per unit |
Insurance | Rs 75 per month |
Consumable stores | Rs 25 per month |
The machine is installed in a department whose monthly rent is Rs 500, and this machine occupies one-fifth of the area. Total monthly lighting cost is Rs 40 for 10 light points, of which three relate to the machine. A supervisor with a monthly salary of Rs 500 spend one-fourth of his time for this machine. Calculate the MHR.
[Chennai, 1999]
[Ans: MHR = Rs 5.0744 (or) Rs 5.07]
Cost of the machine | Rs 90,000 |
Freight and installation | Rs 10,000 |
Working life | 10 years |
Working hours | 2,000 per annum |
Repair charges | 50% of depreciation |
Power | 10 units per hour at 10 paise per unit |
Lubricating oil at | Rs 2 per day of 8 hours |
Stores at | Rs 10 per day of 8 hours |
Wages of operator at | Rs 4 per day |
[Chennai, 1998]
[Ans: MHR = Rs 10]
Hint: Ignore wages of the operator. If it is also included, the MHR will be comprehensive or composite, Machine Hour Rate will be 10 + 0.50 = Rs 10.50.
(a) Cost of the machine no. 7: Rs 1,000 |
(b) Estimated scrap value at finish of working life (10 years): Rs 100. |
(c) Normal running hours per year: 1,800 hours |
(d) Machine no. 7 occupies one-fifth of the floor space of the department; the rent, rates, lighting etc. of which amounted to Rs 350 per annum |
(e) Charges for electric power supplied to machine no. 7: Rs 200 per annum |
(f) Charges for oil, waste etc. supplied to machine no. 7: Rs 30 per annum |
(g) Repair and maintenance machine estimated: Rs 360 per annum. |
(h) Cost of supervision and other expenses applicable to Machine no. 7 estimated at Rs 150 per annum. Labour cost of operating the machine should be ignored in your calculations. |
[B.Com., Mysore]
[Ans: Re 0.50]
Cost of the machine | Rs 80,000 |
Cost of installation | Rs 20,000 |
Scrap value after 10 years | Rs 20,000 |
Rent and rates per quarter for the shop | Rs 3,000 |
General lighting (per month) | Rs 200 |
Shop supervision per quarter | Rs 6,000 |
Insurance premium per annum | Rs 600 |
Estimated repairs per annum | Rs 1,000 |
Power | 2 units per hour at Rs 50 per 100 units |
Estimated working hours per annum | 2,000 hours |
The machine occupies one-fourth of the total area of the shop. The supervisor spend one-sixth of his time for supervising this machine. General lighting is to be apportioned on the basis of floor area.
[Chennai, 1998]
[Ans: MHR = Rs 9.60]
Cost of the machine | Rs 1,00,000 |
Installation charges | Rs 10,000 |
Estimated scrap value after the expiry of its life (15 years) | Rs 5,000 |
Rent and rates for the shop per month | Rs 200 |
General lighting for the shop per month | Rs 300 |
Insurance premium for the machine per annum | Rs 960 |
Repairs and maintenance per annum | Rs 1,000 |
Power consumption 10 units per hour | |
Rate of power per 100 units | Rs 20 |
Estimated working hours per annum, which includes setting up time of 200 hours | 2,200 |
Shop supervisor's salary per month | Rs 600 |
The machine occupies one-fourth of the total area of the shop. The shop supervisor is expected to spend one-fifth of his time for supervising the machine.
[B.Com., Delhi]
[Ans: Rs 7.95]
Expected life of machine: 10 years |
Scrap value at the end of 10 years: Rs 5,000 |
Repairs and maintenance for the machine during the year: Rs 2,000 |
Expected number of working hours of the machine per year: 4,000 hours |
Insurance premium annually for all the machines: Rs 4,500 |
Electricity consumption for the machine per hour (at 75 paise per unit): 25 units |
Area occupied by the machine: 100 sq. ft. |
Area occupied by other machines: 1,500 sq. ft. |
Rent per month of the department: Rs 800 |
Lighting charges for 20 points for the whole department, out of which three points are for the machine: Rs 120 per month. |
Compute the MHR for the two machines on the basis of the data given above.
[Chennai, 1997]
[Ans: MHR = Rs 31.904 or Rs 31.90]
Materials used | Rs 54,000 |
Direct wages | Rs 45,000 |
Labour hours worked | 36,000 |
Hours of machine operation | Rs 30,000 |
Overheads chargeable for the department | Rs 36,000 |
For an order executed by the department during the period, the relevant information was as follows:
Materials used | Rs 6,000 |
Direct wages | Rs 3,200 |
Labour hours worked | Rs 3,200 |
Hours of machine operation | Rs 2,400 |
Calculate the overhead charges chargeable to the job by the following methods: (1) Direct materials cost percentage rate, (2) labour hours rate (3) MHR.
[B.Com., Delhi]
[Ans: (1) Rs 4,000, (2) Rs 3,200, (3) Rs 2,880]
Cost of machine | Rs 1,00,000 |
Installation charges | Rs 10,000 |
Estimated scrap value after the expiry of life (15 years) | Rs 5,000 |
Rent and rates for the shop per month | Rs 200 |
General lighting for the shop per month | Rs 300 |
Insurance premium for the machine per annum | Rs 960 |
Repair and maintenance per annum | Rs 1,000 |
Power consumption of 10 units per hour | |
Rate of power per 100 units | 20 |
Estimated working hours per annum | 2,200 |
This includes setting up time of 200 hours | |
Shop supervisor's salary per month | 600 |
The machine occupies one-fourth of the total area. The supervisor is expected to devote one-fifth of his time for supervising the machine.
[Chennai, 1994]
[Ans: MHR = Rs 7.95]
Hint: Assume setting up time of 200 hours as normal. Compute the rate for productive hours: 2,200 -200 = 2,000.
1. Cost of asset: Rs 1,05,000 with a scrap value of Rs 15,000 at the end of its working life |
2. Installation charges: Rs 10,000 |
3. Life of asset: 10 years at 2,000 working hours per year |
4. Repair charges: 50% of depreciation |
5. Lubricating oil: Rs 2 per day of 8 hours |
6. Consumable stores at Rs 10 per day of 8 hours |
7. Direct wages of operator at Rs 4 per day |
8. Consumption of electric power: 10 units per hour at 7 paise per unit |
[Poona]
(1) Cost of the machine | Rs 24,000,000 |
(2) Customs duty, insurance, freight etc. | Rs 11,00,000 |
(3) Installation expenses | Rs 3,00,000 |
(4) Cost of tools for the first 2 years | Rs 4,00,000 |
(5) Cost of machine room | Rs 3,00,000 |
(6) Cost of air conditioning machine room | Rs 2,00,000 |
(7) Rate of interest on loan to finance the purchase | 12% per annum |
(8) Salaries of operators | Rs 2,00,000 per annum |
(9) Cost of electricity | Rs 11 per hour |
(10) Consumption of stores | Rs 5,000 per annum |
(11) Other expenses | Rs 5,000 per annum |
(12) Rate of depreciation at 10% per annum on fixed assets | |
(13) Total working hours of machine | 200 hours per month |
(14) Loading and unloading time | 10% of the machine time |
[Madurai, 1982]
[Ans: Rs 915.66]
(a) Rent and rates for the shop: Rs 4,000 |
(b) Depreciation on each machine: Rs 400 |
(c) Power consumed (as per metre) at 10 paise per unit for shop: Rs 3,00 |
(d) Electric charges for light in the shop: Rs 540 |
(e) Attendants: There are two attendants for the five machines, and they are each paid Rs 60 per month. |
The machine uses 10 units of power per hour. Calculate the MHR of the machine.
[Chennai, 1994]
[Ans: MHR = Rs 3.66; machine hours per annum per machine based on power cost = 600 hours]
Note: The MHR is a comprehensive MHR since attendants’ wages are also included.
(a) Wages, bonus and provident fund contribution of each of the two operators (each operator is in charge of two machines) | Rs 6,000 per annum |
(b) Rent and rates of the shop | Rs 3,000 per annum |
(c) General lighting of the shop | Rs 250 per month |
(d) Insurance premium for the machine per quarter | Rs 200 |
(e) Cost of repairs and maintenance per machine | Rs 250 per month |
(f) Shop supervisor's salary | Rs 500 |
(g) Other factory overhead attributable to the shop | Rs 4,000 per month |
(h) Power consumption of the machine per hour: 20 units; rate of power per 100 units | Rs 10 |
There are four identical machines in the shop. The supervisor is expected to devote one-fifth of his time for supervising the machine. Compute a comprehensive MHR from the above details.
[C.A. Inter]
[Ans: Rs 12.00]
(1) Original purchase price of the machine (subject to depreciation at 10% per year on original cost) | Rs 21,600 |
(2) Normal working hours for the month (the machine works to only 75% of capacity) | 200 hours |
(3) Wages of machine man | Rs 4 per day (hours) |
(4) Wages of a helper | Rs 2 per day (8 hours) |
(5) Power consumption (Horse Power) is estimated at Rs 150 per month for the time worked | |
(6) Supervision charges apportioned for the machine | Rs 300 per month |
(7) Electricity and lighting | Rs 75 per month |
(8) Repairs and maintenance (machine) including consumable store per month | Rs 150 |
(9) Insurance of plant and building (apportioned) | Rs 1,000 per year |
(10) Other general expenses overhead per annum | Rs 2,160 |
(11) Production bonus payable to workers: in terms of an award of basicwages and dearness allowance | |
(12) Workers are also paid a fixed dearness allowance of Rs 75 per month | |
(13) Add 10% of the basic wages and dearness allowance against leave wages and holidays with pay to arrive at a comprehensive labour cost for debit to production |
[Calcutta]
[Ans: Rs 10.32]
Purchase price of machine | Rs 80,000 |
Installation expenses | Rs 20,000 |
Rent per quarter | Rs 3,000 |
General lighting for the whole area | Rs 200 per month |
Supervisor's salary | Rs 6,000 per quarter |
Insurance premium for the machine | Rs 600 per annum |
Estimated repair for the machine | Rs 1,000 per annum |
Estimated consumable stores | Rs 800 per annum |
Power: 2 units per hour at | Rs 50 per 100 units |
The estimated life of machine is 10 years, and the estimated scrap value is Rs 20,000. The machine is expected to run 20,000 hours in its life. The machine occupies 25% of the total area. The supervisor devotes one-sixth of his time for the machine.
You are required to work out MHR.
[Madurai]
[Ans: Rs 10]
1. Cost of the machine | Rs 10,000 |
2. Estimated life | 10 years |
3. Scrap value | Rs 1,000 |
4. Yearly working time (50 weeks of 44 hours each) | 2,200 hours |
5. Machine maintenance | 200 hours per annum |
6. Setting up time estimated at 5% of total productive time and is regarded as productive time | |
7. Electricity is 16 units per hour at 10 paise per unit | |
8. Chemical required weekly | Rs 20 |
9. Maintenance cost per year | Rs 1,200 |
10. Two attendants control the operations of machine together with six other machines. Their combined weekly wages are | Rs 140 |
11. Departmental overhead allocated to this machine per annum | Rs 2,000 |
You are required to calculate the MHR.
[CA]
[Ans: Rs 4.81]
(a) Wages, bonus and provident fund contribution of each of the two operators (each operator is in charge of two machines): Rs 6,000 per annum |
(b) Rent and rates of the shop: Rs 3,000 per annum |
(c) General lighting for the shop: Rs 250 per month |
(d) Insurance premium per machine: Rs 200 per quarter |
(e) Cost of repairs and maintenance per machine: Rs 250 per month |
(f) Shop supervisor's salary: Rs 500 per month |
(g) Power consumption of the machine per hour: 20 units at Rs 10 per 100 units |
(h) Other factory overheads chargeable to the shop: Rs 4,000 per annum |
There are four identical machines in the shop. The supervisor is expected to spend of his time for supervising the machine. Form the above particulars, compute comprehensive MHR.
[Mysore]
[Ans: Rs 12]
Cost of the machine | Rs 8,000 |
Cost of installation | Rs 2,000 |
Scrap value after 10 years | Rs 2,000 |
Rates and rent for a quarter for the shop | Rs 300 |
General lighting | Rs 20 per month |
Shop supervisor's salary | Rs 600 per quarter |
Insurance premium for a machine | Rs 60 per annum |
Estimated repair | Rs 100 per annum |
Power: 2 units per hour | Rs 50 per 100 units |
Estimated working hours | 2,000 hours per annum |
The machine occupies one-fourth of the total area of the shop. The supervisor is expected to spend one-sixth of his time for supervising the machine. General lighting expenses are to be apportioned on the basis of floor area.
[Delhi]
[Ans: Rs 1.86]
The following are the expenses per annum of the machine shop.
Rent | Rs 10,000 |
Rates and water | Rs 4,250 |
Light and heat | Rs 3,150 |
Power for A | Rs 5,100 |
Power for B | Rs 5,000 |
Power for C | Rs 12,000 |
Power for D | Rs 14,500 |
Administration | Rs 9,500 |
Running expenses works sundries | Rs 20,000 |
Prepare an MHR for each machine, assuming 45 hours in a week and 50 weeks a year, 80% utilisation and life of machine being 10 years without scrap value.
(C.A)
[Ans: A, Rs 9.61; B, Rs 10.32; C, Rs 14.97; D, Rs 17.88]
Normal available hours per month | 208 |
Absenteeism (without pay) hours | 18 |
Leave (with pay) hours | 30 |
Wages for 8 hours | Rs 20 |
Production bonus estimated 15% on wages | |
Value of power consumed | Rs 8,050 |
Supervision and indirect labour | Rs 3,300 |
Lighting and electricity | Rs 1,200 |
These particulars are for a year |
Repairs and maintenance including consumables 3% on the value of the machine
Insurance | Rs 40,000 |
Depreciation | 10% on original cost |
Other sundry works’ expenses | Rs 12,000 |
General management expenses allocated | Rs 54,530 |
You are required to work out comprehensive MHR for the machine shop.
Rent | Rs 50,000 |
Heat and light | Rs 20,000 |
Supervision | Rs 1,30,000 |
Departmental area | 70,000 square metres |
Machine area | 2,500 square metres |
Ans: Comprehensive MHR = 20.14
Note: It is assumed that there is no power cost when the machine is being set or adjusted.
(B) If the MHR as calculated in (A) is adopted, the overheads absorbed over the various jobs will be as follows
Job no. 605 = 20.14 × 80 = Rs 1,611.20 |
Job no. 595 = 20.14 × 70 = Rs 1,409.80 |
Wages, bonus and provident fund, contribution of each of two operators (each operator is in charge of two machines) | Rs 6,000 per year |
Rent and rates of the shop | Rs 3,000 per year |
General lighting of the shop | Rs 250 per month |
Insurance premium for the machine | Rs 200 per quarter |
Cost of repairs and maintenance per machine | Rs 250 per month |
Shop supervisor's salary | Rs 500 per month |
Power consumption of the machine hour | 20 units |
Rate of power per hundred units | Rs 10 |
Other factory overheads attributable to the shop | 4,000 per year |
There are four identical machines in the shop. The supervisor is expected to devote 1/5th of his time for supervising the machine. Compute a comprehensive MHR from the above details.
Ans: Total MHR = 12.00
Original cost of 3 machines | Rs 56,800 |
Depreciation at 10% per annum (straight line method) | |
Repairs and maintenance cost average | Rs 16 per day |
Power | 30 paise per running hour per machine |
Supervision for the group of machines | Rs 800 per month |
Allocation of rent for 3 machines on a floor area basis | Rs 120 per month |
Share of manufacturing overheads | Rs 250 per month for the group of machines |
Normal working days | 300 in a year |
Normal operation | 1 shift of 8 hours |
Normal allowance for repairs, maintenance, change over, idle time etc | 20% |
(i) Rent and rates (proportional to the floor space) for the shop | Rs 4,800 | |
(ii) Depreciation on each machine | 500 | |
(iii) Repairs and maintenance for the five machines | 1,000 | |
(iv) Power consumed (as per meter) @ 5 p. per unit for the shop | Rs 3,000 | |
(v) Electric charges for light in the shop | Rs 540 | |
(vi) Attendants: There are two attendants for the five machines and they are each paid Rs 60 per month. | ||
(vii) Supervision: For the five machines in the shop there is one supervisor whose emoluments are Rs 250 per month | ||
(viii) Sundry supplies for the shop | Rs 450 | |
(ix) Hire purchase instalments payable for the machine (including Rs 300 as interest): 1,200 |
The machine uses 10 units of power per hour. Calculate the MHR for the machine for the year.
Ans: Comprehensive MHR = 2.7884 or 2.79
Note: (1) Calculations are made up to the fourth decimal to minimise the effect of approximations.
(2) When attendants’ salary or wages is also included in the calculation, the MHR is called ‘comprehensive MHR’ or ‘composite MHR’.
Working Note: annual working hours per machine
Total amount of power consumed: Rs 3,000
Rate of power: 0.50 per hour
Total working hours = = 6,000 hours
No. of machines = 5
Hours per machine = = 1,200 hours per annum
Working department (Rs) | Finishing department (Rs) | |
---|---|---|
Materials used | 6,000 | 500 |
Direct labour | 3,000 | 1,500 |
Factory overheads | 1,800 | 1,200 |
Direct labour hours | 12,000 | 5,000 |
Machine hours | 10,000 | 2,000 |
Following information relates to Job no. 17.
Working department (Rs) | Finishing department (Rs) | |
---|---|---|
Materials used | 120 | 10 |
Direct labour | 65 | 25 |
Direct labour hours | 265 | 70 |
Machine hours | 255 | 25 |
You are required (a) to enumerate four methods of absorbing factory overheads by jobs showing the rates for each department under the methods quoted and (b) to prepare a statement showing the different cost results for job no. 17 under each of four methods referred to.
3.142.133.147