FORMAT TO COMPUTATION OF MACHINE HOUR RATE

Particulars Per Annum or Per hour

Per Month

I.STANDING CHARGES (Or) FIXED CHARGES

Rent
Lighting and heating
Foreman’s salary
Insurance
Wages of attendants
Supervision
Miscellaneous overheads
General overheads etc
TOTAL STANDING CHARGES
STANDING CHARGE RATE= Total standing charges [A]
Machine hours
II. RUNNING CHARGES (or) VARIABLE CHARGES (or)
MACHINE EXPENSES
Repairs and maintenance
Depreciation
Chemicals
Power
Consumable stores etc
VARIABLE CHARGE RATE = Total Running charges [B]
Machine hours

MACHINE HOUR RATE = A+B

Note:

 Separate the machine expenses into standing and running charges.

 If purchase price or original cost of the machine, installation charges, scrap (residual)
value and estimated life of the machine is given, calculate depreciation.
 ie, depreciation = original cost+ installation charges- scrap(residual) value
Estimated life of the asset

 If supervisor/foreman’s time devoted for the machine is given, salary /wages is calculated
on the basis of time devoted.
 If area occupied by the machine is given, rent and lighting are calculated on the basis of
area occupied.
 Setting up time non productive is deducted while calculating Machine Hours/ Effective
machine hours.
 ABSORPTION OF OVERHEADS

Methods of absorption of production overheads

1. Percentage methods

a) Direct Material cost percentage rate =

Production overhead (or) Factory overhead (or) overhead chargeable to the department * 100

Direct Materials

b) Direct Labor cost percentage rate =

Production overhead (or) Factory overhead (or) overhead chargeable to the department * 100

Direct labour cost (or) direct wages

c) Prime cost percentage rate =

Production overhead (or) Factory overhead (or) overhead chargeable to the department * 100

Prime Cost

2. Hourly rate methods

a) Direct Labor Hour Rate =

Production overhead (or) Factory overhead (or) overhead chargeable to the department

Direct Labor Hours (or) no. of labour hours

b) Machine Hour Rate =

Production overhead (or) Factory overhead (or) overhead chargeable to the department

No. of Machine Hours