How to Calculate Machine Hour Rate

To calculate machine hour rate is so easy and very useful for calculating all overheads without checking each and every detail of different overheads. To know what is its process, we are giving following example :

A machine costing Rs. 10000 is expected to run for 10 years. At the end of this period its scrap value is

likely to be Rs. 900. Repairs during the whole life of the machine are expected to be Rs. 18000 and the

machine is expected to run 4380 hours per year on the average. Its electricity consumption is 15 units per

hour, the rate per unit being 5 paise. The machine occupies one fourth of the area of the department and has

two points out of a total of ten for lighting. The foreman has to devote about one sixth of his time to the

machine. The monthly rent of the department is Rs. 300 and the lighting charges amount to Rs. 80 per

month. The foreman is paid a monthly salary of Rs. 960. Find out the machine hour rate, assuming

insurance is @ 1% p.a. and the expenses on oil, are Rs. 9 per month.


Ist Step

Fixed expenses per month

After searching, the question, you will find five fixed overheads which I showed in Yellow mark. But just finding fixed cost is not sufficient to calculate machine hour rate because we also have to calculate allocate according some basis which is given below

a) Rent : We take only one fourth total rent because our machine takes only one fourth space

300 X 1/4 = Rs. 75.00

b) Lighting :  We take one fifth of the total lighting because our machine is using only two points out of total ten points of lighting.

80 X 2/10 = 80 X 1/5 = 16

c) Foreman's salary will be one sixth of total salary because he devote only one sixth of his time for machine.

960 X 1/6 = 160

d) Sundry Expenses - oil, waste etc.  9.00

e) Insurance 10000 X 1% X 1/12 = 8.33


Total Fixed overheads = 268.33

2nd Step

Calculate Total Hours of Working

because, we calculate total fixed overheads on monthly basis, so we have also working hours of machine on month basis.

Total number of hours machine used in a year = 4350

Total number of hours per month = 365

Fixed expenses per hour = 268 / 365

= 0.735

3rd Step

To Calculate Variable Overhead per hour

a) Depreciation  ( Note : it is not given in question, you calculate it with following formula)

depreciation per hour = cost of machine - scrap / useful life X 1/ total hours of working of machine in a year

= 10000 - 900 / 10 X 1 / 4380 = 0.208

b) Repairs for one hour = 18000 / 4380 X 10 years = 0.411

c) Electricity bill for one hour = 15 units X 0.05 p = 0.750

4th Step

To Calculate Machine Hour

Fixed overhead per hour + Variable overhead per hour = Rs. 2.104 per hour



"accounting software" "cost accountant" "financial management" account accountant accounting accounting education accounting format accounting glossary accounting questions accounting software accounting Term ad advertising american express answer auditing balance sheet bank bba BCA bonus business Business Dictionary CA CA- IPCC CA-CPT CA-Final capital career Category cfa children coaching company conferences Consignment Accounting contact corporate accounting Correction of Spelling and Grammar Mistakes cost cost accounting CPT credit card debit card debt degree depreciation dictionaries donation earning ecommerce economics education Events finance Finance Dictionary financial financial accounting financial mathematics Financial Ratios forex management free funds google google apps google talk guest writer Help Center ICWAI IFRS inspiration insurance terms interest journal entries lectures List management accounting mathematics MBA MCA media mutual funds ngo notes overhead pdf pnb presentation Prof. Vinod profiles quickbooks quiz ratio rbi reporting Service Tax shares solution students tally tax teacher teaching Test Testimonials tips treasury management tutorial UGC NET Commerce video webinars Wikipedia working capital
Education : How to Calculate Machine Hour Rate
How to Calculate Machine Hour Rate
Not found any lecture VIEW ALL Readmore Reply Cancel reply Delete By Home PAGES Lectures View All RECOMMENDED FOR YOU Category ARCHIVE SEARCH ALL Lectures Not found any lecture match with your request, please help to write it and send it to our email at for making this website free accounting and finance encyclopedia. Back Home Sunday Monday Tuesday Wednesday Thursday Friday Saturday Sun Mon Tue Wed Thu Fri Sat January February March April May June July August September October November December Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec just now 1 minute ago $$1$$ minutes ago 1 hour ago $$1$$ hours ago Yesterday $$1$$ days ago $$1$$ weeks ago more than 5 weeks ago Followers Follow THIS CONTENT IS PREMIUM Please share to unlock