Machine Hour Rate (MHR) Problems and Solutions with Full Concept [14 Solved Questions]

📘 Machine Hour Rate – Article and Problems

Introduction of Machine Hour Rate (MHR)

Where machines are more dominant than labor, machine hour rate method is used. CIMA defines machine hour rate as ‘actual or predetermined rate of cost apportionment or overhead absorption, which is calculated by dividing the cost to be appropriated or absorbed by a number of hours for which a machine or machines are operated or expected to be operated’. In other words, machine hour rate is the cost of operating a machine on per hour basis. The formula for calculating the machine hour rate is, Budgeted or Actual Overhead Expenses/ Machine Hours.

Key points to be taken into consideration while calculating MHR

• Total overheads of machine are divided into two categories – standing charges or fixed expenses and variable expense or machine expenses.
• Machine hour rate is calculated by considering the actual or potential hours of works of the machine. Potential or normal working hours are calculated after deducting normal idle time, setting time, normal repairs and maintenance time. Abnormal idle time is not deducted while calculating mhr.
• Depreciation may be treated as variable expenses. Formula to calculate depreciation per hour = (cost of machine + all installation charges – scrap value ) / life of machine in hours.
• Operators’ wages or machine operator charges are added only when Comprehensive machine hour rate is to be calculated.

Advantages of MHR:

• It ensure an equitable charge where machine work is predominant.
• It is best method of recovery of overheads irrespective of number of operators.
• It is a logical method because it consider time factor.
• Under or over-absorption of overheads helps in identifying the idle time of the machine.

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Past exam Machine Hour Rate (MHR) Problems and solutions:

Q.1. From the following information, compute machine hour rate of a machine in a shop consisting of 3 machines occupying equal floor space. The estimated working hours per year are fixed at 2500 hours in which normal idle time is estimated at 20% of the standard time:

• Rent and taxes of the shop per annum – Rs. 3,600
• General Electricity for the shop per month – Rs. 200
• Repairs and maintenance expenses for the machine per annum – Rs. 600
• Rate of power charges for 100 units (the machine consuming 10 units per hour) – Rs. 3
• Foreman’s salary for supervising all the machines per month – Rs. 750
• Indirect labour cost – Rs. 2 per hour for the machine.
• The machine cost – Rs. 1,30,000.
• Scrap value is estimated at Rs. 10,000.
• Estimated life is 10 years. The foreman devotes equal attention for each machine in the shop.

Solution: Calculation of Machine Hour Rate

Step 1: Calculate Effective Working Hours
= 2,500 hours - (20% of 2,500 hours) = 2,500 - 500 = 2,000 hours

Particulars	Per Annum (Rs)	Per Hour (Rs)
Standing Charges:
Rent (Rs. 3,600 / 3 machines)	1,200
Electricity (Rs. 200 x 12 months / 3 machines)	800
Foreman’s Salary (Rs. 750 x 12 months / 3 machines)	3,000
Total Standing Charges	5,000	Rs. 5,000 / 2,000 hrs = 2.50
Running Expenses:
Depreciation ((Rs. 1,30,000 - Rs. 10,000) / 10 years)	12,000	Rs. 12,000 / 2,000 hrs = 6.00
R/M (Rs. 600)	600	Rs. 600 / 2,000 hrs = 0.30
Power (10 units/hr * Rs. 3 / 100 units)	—	0.30
Indirect Labour cost (Operator’s wages)	—	2.00
Total Machine Hour Rate		11.10

Q.2. From the following details, compute the hourly rate of a machine installed in a shop:              12

• Cost of machine: Rs. 2,00,000
• Installation charges: Rs. 20,000
• Estimated scrap value: Rs. 10,000
• Rent and rates p.a.: Rs. 7,200
• General lighting of the shop p.m.: Rs. 800
• Insurance premium for the machine per quarter: Rs. 720
• Repairs and maintenance p.a.: Rs. 3,000
• Power consumption: 20 units per hour, rate of power per 100 units is Rs. 20.
• Estimated working hours of the machine: 2300 hours per year.
• Shop supervisor’s salary per month: Rs. 1,800.
• The machine occupies 1/4th of the total floor area of the shop.
• The supervisor is expected to devote 1/5th of his time for supervising the machine.
• Normal idle time is expected to be 300 hours per annum.

Solution: Calculation of Machine Hour rate

Step 1: Calculate Effective Working Hours
= 2,300 hours - 300 hours (idle time) = 2,000 hours

Particulars	Per Annum (Rs)	Per Hour (Rs)
Standing Charges:
Rent (Rs. 7,200 x 1/4)	1,800
General lighting (Rs. 800 x 12 months x 1/4)	2,400
Insurance (Rs. 720 x 4 quarters)	2,880
Supervisor Salary (Rs. 1,800 x 12 months x 1/5)	4,320
Total Standing Charges	11,400	Rs. 11,400 / 2,000 hrs = 5.70
Running Expenses:
Depreciation ((Rs. 2,00,000 + Rs. 20,000 - Rs. 10,000) / 10 years = 21,000)	21,000	Rs. 21,000 / 2,000 hrs = 10.50
R/M (Rs. 3,000)	3,000	Rs. 3,000 / 2,000 hrs = 1.50
Power (20 units/hr * Rs. 20 / 100 units)	—	4.00
Total Machine Hour Rate		21.70

Q.3. A machine has been purchased for cash at Rs 9,200. Its working life is estimated to be 18000 hours after which its scrap value is estimated at Rs 200. It is assumed from past experience that-

• The machine will work for 1800 hours annually,
• The repair charges will be Rs 1080 during the whole period of life of the machine;
• The power consumption will be 5 units per hour at 6 paise per unit;
• Other annual standing charges are estimated to be :
• Rent of department (machine 1/5th )—Rs 780
• Light (12 points in the department, 2 points engaged in the machine)—Rs 288
• Foreman’s salary (1/4th of his time is occupied in the machine)—Rs 6,000
• Insurance premium (fire) for machinery—Rs 36
• Cotton waste—Rs 60
• Find out the machine hour rate on the basis of above data for allocation of work expenses to all jobs for which the machine is used.

Solution: Computation of Machine Hour Rate

Step 1: Calculate Effective Working Hours
= 1,800 hours (given annually)

Particulars	Per Annum (Rs)	Per Hour (Rs)
Standing Charges:
Rent (Rs. 780 / 5)	156
Light points (Rs. 288 x 2/12)	48
Foreman’s Salary (Rs. 6,000 x 1/4)	1,500
Insurance premium	36
Cotton waste	60
Total Standing Charges	1,800	Rs. 1,800 / 1,800 hrs = 1.00
Running Expenses:
Depreciation ((Rs. 9,200 - Rs. 200) / 18,000 hours total life)	—	0.50
R/M (Rs. 1,080 total over life / 18,000 hours total life)	—	0.06
Power (5 units/hr * Rs. 0.06/unit)	—	0.30
Total Machine Hour Rate		1.86

Q.4. Compute machine hour rate of a machine in a shop consisting of 3 machines occupying equal floor space. Following detail are supplied for the machine of which estimated working hours per year are fixed at 2500 hours in which normal idle time is estimated at 20% of the standard time:

• Rent and taxes of the shop per annum: Rs. 3,600
• Electricity for the shop per month: Rs. 200
• Repairs and maintenance expenses for the machine per annum: Rs. 600
• Rate of power changes for 100 units (the machine consuming 10 units per hour): Rs. 3
• Forman’s salary for supervising all three machines, per month: Rs. 750
• Indirect labour cost Rs. 2 per hour for the machine.
• The machine cost: Rs. 1,30,000.
• Scrap value is estimated at Rs. 10,000.
• Estimated life is 10 years.
• The foreman devotes equal attention for each machine in the shop.

Solution: Calculation of Machine Hour Rate

Step 1: Calculate Effective Working Hours
= 2,500 hours - (20% of 2,500 hours) = 2,500 - 500 = 2,000 hours

Particulars	Per Annum (Rs)	Per Hour (Rs)
Standing Charges:
Rent (Rs. 3,600 / 3 machines)	1,200
Electricity (Rs. 200 x 12 months / 3 machines)	800
Foreman’s Salary (Rs. 750 x 12 months / 3 machines)	3,000
Total Standing Charges	5,000	Rs. 5,000 / 2,000 hrs = 2.50
Running Expenses:
Depreciation ((Rs. 1,30,000 - Rs. 10,000) / 10 years)	12,000	Rs. 12,000 / 2,000 hrs = 6.00
R/M (Rs. 600)	600	Rs. 600 / 2,000 hrs = 0.30
Power (10 units/hr * Rs. 3 / 100 units)	—	0.30
Indirect Labour cost (Operator’s wages)	—	2.00
Total Machine Hour Rate		11.10

Q.5. From the following data, calculate the machine hour rate of a machine:

• Cost of machine: Rs. 35,500
• Scrap value: Rs. 2,500
• Estimated life: 12 years
• Effective working days: 200 days of 8 hours + 100 days of 6 hours
• Maintenance and repairs: 7.5% of cost of machine
• Stores consumed: Rs. 1,000
• Power consumption: Rs. 2 per operating hour
• Insurance premium: 1% of cost of machine
• Supervision expenses: Rs. 7,500
• Estimated idle time: 10%

Solution: Computation of Machine hour rate

Step 1: Calculate Normal Working Hours
= (200 days × 8 hrs) + (100 days × 6 hrs) = 1,600 + 600 = 2,200 hrs
Idle time = 10% of 2,200 = 220 hrs
Effective working hours = 2,200 – 220 = 1,980 hrs

Step 2: Calculate Running Expenses Per Hour

• Depreciation = (Cost – Scrap Value) / Life = (35,500 – 2,500) / 12 years = Rs. 2,750 p.a.
  Per hour = Rs. 2,750 / 1,980 hrs = Rs. 1.39
• Repairs & Maintenance = 7.5% of 35,500 = Rs. 2,662.50 p.a.
  Per hour = Rs. 2,662.50 / 1,980 hrs = Rs. 1.34
• Stores Consumed = Rs. 1,000 p.a.
  Per hour = Rs. 1,000 / 1,980 hrs = Rs. 0.51
• Power = Rs. 2.00 (given per operating hour)

Step 3: Calculate Standing Charges Per Hour

• Insurance = 1% of 35,500 = Rs. 355 p.a.
• Supervision = Rs. 7,500 p.a.
• Total Standing Charges = Rs. 355 + Rs. 7,500 = Rs. 7,855 p.a.
  Per hour = Rs. 7,855 / 1,980 hrs = Rs. 3.97

Particulars	Per Annum (Rs)	Per Hour (Rs)
Standing Charges:
Insurance Premium (1% of 35,500)	355	0.18
Supervisor’s Expenses	7,500	3.79
Total Standing Charges (Sum of above)	7,855	3.97
Running Expenses:
Depreciation	2,750	1.39
Repairs & Maintenance	2,662.50	1.34
Stores Consumed	1,000	0.51
Power	—	2.00
Total Machine Hour Rate		9.21

Q.6. From the following details, compute the hourly rate of a machine installed in a shop:

• Cost of Machine: Rs. 2,00,000
• Installation charges: Rs. 20,000
• Estimated Scrap value: Rs. 10,000
• Rent and rates of the shop p.a.: Rs. 7,200
• General lighting of the shop p.m.: Rs. 800
• Insurance premium for the machine per quarter: Rs. 720
• Estimated repairs and maintenance cost of the machine p.a.: Rs. 3,000
• Power consumption of the machine: 20 units per hour
• Rate of power per 100 units: Rs. 20
• Estimated working hours of the machine per year: 2,300
• Shop Supervisor’s salary per month: Rs. 1,800
• The machine occupies 1/4th of the total floor area of the shop.
• The supervisor is expected to devote 1/5th of his time for supervising the machine.
• Normal idle time is expected to be 300 hours per annum.
• Life assumed: 15 years (as per solution calculation in original Q11)

Solution: Computation of Machine Hour Rate

Step 1: Calculate Effective Working Hours
= 2,300 hours - 300 hours (idle time) = 2,000 hours

Step 2: Calculate Running Expenses Per Hour

• Depreciation = ((Cost + Installation) – Scrap Value) / Estimated Life = (Rs. 2,00,000 + Rs. 20,000 - Rs. 10,000) / 15 years = Rs. 2,10,000 / 15 = Rs. 14,000 p.a.
  Per hour = Rs. 14,000 / 2,000 hrs = Rs. 7.00
• Repairs & Maintenance = Rs. 3,000 p.a.
  Per hour = Rs. 3,000 / 2,000 hrs = Rs. 1.50
• Power = 20 units/hr * (Rs. 20 / 100 units) = 20 * 0.20 = Rs. 4.00 per hour

Step 3: Calculate Standing Charges Per Hour

• Rent (Shop) = Rs. 7,200 p.a. * 1/4 (area occupied) = Rs. 1,800 p.a.
• General Lighting (Shop) = Rs. 800 p.m. * 12 months * 1/4 (area occupied) = Rs. 2,400 p.a.
• Supervisor’s Salary = Rs. 1,800 p.m. * 12 months * 1/5 (time devoted) = Rs. 4,320 p.a.
• Insurance = Rs. 720 per quarter * 4 quarters = Rs. 2,880 p.a.
• Total Standing Charges = Rs. 1,800 + Rs. 2,400 + Rs. 4,320 + Rs. 2,880 = Rs. 11,400 p.a.
  Per hour = Rs. 11,400 / 2,000 hrs = Rs. 5.70

Particulars	Per Annum (Rs)	Per Hour (Rs)
Standing Charges:
(i) Rent	1,800
(ii) Electricity	2,400
(iii) Supervisor’s Salary	4,320
(iv) Insurance (720*4)	2,880
Total Standing Charges	11,400	5.70
Running Expenses:
(i) Depreciation	14,000	7.00
(ii) Repairs & Maintenance	3,000	1.50
(iii) Power	—	4.00
Total Machine Hour Rate		18.20

7. A machine purchased for Rs. 55,000. It was installed in a shop over 1/5th of its floor area at an additional cost of Rs. 5,000. The working life of the machine as also the scrap value was estimated at 10 years and Rs. 5,000 respectively. From the following details, compute the machine hour rate:

• Rent and rates of the shop p.a.: Rs. 5,000
• General lighting of the shop p.m.: Rs. 500
• Repairs and maintenance for the machine p.a.: Rs. 3,000
• Insurance premium p.a.: Rs. 2,400
• Supervisor’s salary p.m.: Rs. 1,000
• It is estimated that the supervisor devotes 1/4th of his time for the machine.
• The cost of power is Rs. 20 per 100 units and the machine consumed 10 units per hour.
• Normal working hour of the machine is estimated at 1200 but during the year it actually worked for 1000 hours.

Solution: Computation of Machine Hour rate

Step 1: Calculate Effective Working Hours
= 1,000 hours (actual working hours)

Step 2: Calculate Running Expenses Per Hour

• Depreciation = ((Cost + Installation) – Scrap Value) / Life = (Rs. 55,000 + Rs. 5,000 - Rs. 5,000) / 10 years = Rs. 55,000 / 10 = Rs. 5,500 p.a.
  Per hour = Rs. 5,500 / 1,000 hrs = Rs. 5.50
• R/M = Rs. 3,000 p.a.
  Per hour = Rs. 3,000 / 1,000 hrs = Rs. 3.00
• Power = 10 units/hr * (Rs. 20 / 100 units) = 10 * 0.20 = Rs. 2.00 per hour

Step 3: Calculate Standing Charges Per Hour

• Rent and Rates = Rs. 5,000 p.a. * 1/5 (area occupied) = Rs. 1,000 p.a.
• General Lighting = Rs. 500 p.m. * 12 months * 1/5 (area occupied) = Rs. 1,200 p.a.
• Insurance premium = Rs. 2,400 p.a.
• Supervisor’s Salary = Rs. 1,000 p.m. * 12 months * 1/4 (time devoted) = Rs. 3,000 p.a.
• Total Standing Charges = Rs. 1,000 + Rs. 1,200 + Rs. 2,400 + Rs. 3,000 = Rs. 7,600 p.a.
  Per hour = Rs. 7,600 / 1,000 hrs = Rs. 7.60

Particulars	Per Annum (Rs)	Per Hour (Rs)
Standing Charges:
Rent and Rates (Rs. 5,000 * 1/5)	1,000
General Lighting (Rs. 500 * 12 * 1/5)	1,200
Insurance premium	2,400
Supervisor’s Salary (Rs. 1,000 * 12 * 1/4)	3,000
Total Standing Charges	7,600	7.60
Running Expenses:
Depreciation ((Rs. 55,000 + 5,000 - 5,000) / 10 years)	5,500	5.50
R/M	3,000	3.00
Power (10 units/hr * Rs. 20 / 100 units)	—	2.00
Total Machine Hour Rate		18.10

8. From the following particulars, compute a comprehensive machine hour rate:

• Cost of machine – Rs. 1,00,000; Estimated life – 15 years; Residual value – Rs. 10,000
• Machine running hours – 2040 hours per machine per annum including idle time of 40 hours due to repairs and maintenance and breakdown of machine.
• Power consumption of the machine per hour – 20 units; Rate of power per 100 units – Rs. 80.
• There are two operators in the shop and wages of an operator who is in charge of two machines Rs. 12,000 p.a.
• Rent, rates and taxes of the shop Rs. 4,800 p.a.
• Insurance premium for the machine Rs. 400 per quarter.
• General lighting per month – Rs. 600
• Repairs and maintenance expenses per month Rs. 400 per machine.
• Shop supervisor’s salary per month – Rs. 1,500.
• Other factory overhead allocated to the shop Rs. 6,000 p.a.
• There are four identical machines in the shop. The supervisor devotes 1/5th of his time for supervising the machine.

Solution: Computation of Machine Hour Rate

Step 1: Calculate Effective Working Hours per machine
= 2,040 hours - 40 hours (idle time) = 2,000 hours

Step 2: Calculate Running Expenses Per Hour

• Depreciation = (Cost – Residual Value) / Life = (Rs. 1,00,000 - Rs. 10,000) / 15 years = Rs. 90,000 / 15 = Rs. 6,000 p.a.
  Per hour = Rs. 6,000 / 2,000 hrs = Rs. 3.00
• Power = 20 units/hr * (Rs. 80 / 100 units) = 20 * 0.80 = Rs. 16.00 per hour
• Operator’s Wages = Rs. 12,000 p.a. / 2 machines = Rs. 6,000 p.a. per machine
  Per hour = Rs. 6,000 / 2,000 hrs = Rs. 3.00
• R/M = Rs. 400 p.m. * 12 months = Rs. 4,800 p.a.
  Per hour = Rs. 4,800 / 2,000 hrs = Rs. 2.40

Step 3: Calculate Standing Charges Per Hour

• Rent, Rates & Taxes = Rs. 4,800 p.a. / 4 machines = Rs. 1,200 p.a.
• General Lighting = Rs. 600 p.m. * 12 months / 4 machines = Rs. 1,800 p.a.
• Insurance premium = Rs. 400 per quarter * 4 quarters = Rs. 1,600 p.a.
• Supervisor’s Salary = Rs. 1,500 p.m. * 12 months * 1/5 (time devoted) = Rs. 3,600 p.a.
• Other Factory Overheads = Rs. 6,000 p.a. / 4 machines = Rs. 1,500 p.a.
• Total Standing Charges = Rs. 1,200 + Rs. 1,800 + Rs. 1,600 + Rs. 3,600 + Rs. 1,500 = Rs. 9,700 p.a.
  Per hour = Rs. 9,700 / 2,000 hrs = Rs. 4.85

Particulars	Per Annum (Rs)	Per Hour (Rs)
Standing Charges:
Rent, Rates & Taxes (Rs. 4,800 / 4 machines)	1,200
General Lighting (Rs. 600 * 12 / 4 machines)	1,800
Insurance premium (Rs. 400 * 4)	1,600
Supervisor’s Salary (Rs. 1,500 * 12 * 1/5)	3,600
Other Factory overheads (Rs. 6,000 / 4 machines)	1,500
Total Standing Charges	9,700	4.85
Running Expenses:
Depreciation ((Rs. 1,00,000 - 10,000) / 15 years)	6,000	3.00
Power (20 units/hr * Rs. 80/100 units)	—	16.00
Operator’s Wages (Rs. 12,000 / 2 machines)	6,000	3.00
R/M (Rs. 400 * 12)	4,800	2.40
Total Machine Hour Rate		29.25

Q. 9. A machine was purchases on January, 2014 for Rs. 5 lakhs. The total cost of all machinery inclusive of the new machine was Rs. 75 lakhs. The following further particulars are available :

• Expected life of the 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 4000 hours.
• Insurance Premium Annually for all machines – Rs. 4,500
• Electricity consumption for the machine per hour @ 75 paise per unit for 25 units.
• Area occupied by the machine 100 sq. ft.
• Area occupied by other machines 1500 sq. ft.
• Rent per month of the department – Rs. 800
• Lighting charges – Rs. 120 per months for 20 points for the whole department out of which 3 points are for the machine.
• Compute the machine hour rate for the machine on the basis of the data given above.

Solution: Computation of Machine hour rate

Step 1: Calculate Effective Working Hours
= 4,000 hours (given annually)

Step 2: Calculate Running Expenses Per Hour

• Depreciation = (Cost – Scrap Value) / Life = (Rs. 5,00,000 - Rs. 5,000) / 10 years = Rs. 4,95,000 / 10 = Rs. 49,500 p.a.
  Per hour = Rs. 49,500 / 4,000 hrs = Rs. 12.375
• R/M = Rs. 2,000 p.a.
  Per hour = Rs. 2,000 / 4,000 hrs = Rs. 0.50
• Electricity = 25 units/hr * Rs. 0.75/unit = Rs. 18.75 per hour

Step 3: Calculate Standing Charges Per Hour

• Insurance (allocated to machine) = Rs. 4,500 p.a. * (Cost of machine / Total cost of machinery) = Rs. 4,500 * (5,00,000 / 75,00,000) = Rs. 300 p.a.
• Rent (allocated to machine) = Rs. 800 p.m. * 12 months * (Machine area / Total area) = Rs. 9,600 * (100 / (100 + 1500)) = Rs. 9,600 * (100 / 1600) = Rs. 600 p.a.
• Lighting (allocated to machine) = Rs. 120 p.m. * 12 months * (Machine points / Total points) = Rs. 1,440 * (3 / 20) = Rs. 216 p.a.
• Total Standing Charges = Rs. 300 + Rs. 600 + Rs. 216 = Rs. 1,116 p.a.
  Per hour = Rs. 1,116 / 4,000 hrs = Rs. 0.279

Particulars	Per Annum (Rs)	Per Hour (Rs)
Standing Charges:
Insurance (Rs. 4,500 * 5L/75L)	300
Rent (Rs. 800 * 12 * 100/1600)	600
Lighting (Rs. 120 * 12 * 3/20)	216
Total Standing Charges	1,116	0.279
Running Expenses:
Depreciation ((Rs. 5,00,000 - 5,000) / 10 years)	49,500	12.375
R/M	2,000	0.50
Electricity (25 units/hr * Rs. 0.75/unit)	—	18.75
Total Machine Hour Rate		31.904

Q. 10. From the following data, calculate the machine hour rate of a machine:

• Cost of machine: Rs. 35,500
• Scrap value: Rs. 2,500
• Estimated life: 12 years
• Effective working days: 200 days of 8 hours + 100 days of 6 hours
• Maintenance and repairs: 7.5% of cost of machine
• Stores consumed: Rs. 1,000
• Power consumption: Rs. 2 per operating hour
• Insurance premium: 1% of cost of machine
• Supervision expenses: Rs. 7,500
• Estimated idle time: 10%

Solution: Computation Machine Hour Rate

Step 1: Calculate Normal Working Hours
= (200 days × 8 hrs) + (100 days × 6 hrs) = 1,600 + 600 = 2,200 hrs
Idle time = 10% of 2,200 = 220 hrs
Effective working hours = 2,200 – 220 = 1,980 hrs

Step 2: Calculate Running Expenses Per Hour

• Depreciation = (Cost – Scrap Value) / Life = (35,500 – 2,500) / 12 years = Rs. 2,750 p.a.
  Per hour = Rs. 2,750 / 1,980 hrs = Rs. 1.39
• Repairs & Maintenance = 7.5% of 35,500 = Rs. 2,662.50 p.a.
  Per hour = Rs. 2,662.50 / 1,980 hrs = Rs. 1.34
• Stores Consumed = Rs. 1,000 p.a.
  Per hour = Rs. 1,000 / 1,980 hrs = Rs. 0.51
• Power = Rs. 2.00 (given per operating hour)

Step 3: Calculate Standing Charges Per Hour

• Insurance = 1% of 35,500 = Rs. 355 p.a.
• Supervision = Rs. 7,500 p.a.
• Total Standing Charges = Rs. 355 + Rs. 7,500 = Rs. 7,855 p.a.
  Per hour = Rs. 7,855 / 1,980 hrs = Rs. 3.97

Particulars	Per Annum (Rs)	Per Hour (Rs)
Standing Charges:
Insurance Premium (1% of 35,500)	355	0.18
Supervisor’s Expenses	7,500	3.79
Total Standing Charges (Sum of above)	7,855	3.97
Running Expenses:
Depreciation	2,750	1.39
Repairs & Maintenance	2,662.50	1.34
Stores Consumed	1,000	0.51
Power	—	2.00
Total Machine Hour Rate		9.20

Q.11. From the following details, compute the hourly rate of a machine installed in a shop:

• Cost of Machine: Rs. 2,00,000
• Installation charges: Rs. 20,000
• Estimated Scrap value: Rs. 10,000
• Rent and rates of the shop p.a.: Rs. 7,200
• General lighting of the shop p.m.: Rs. 800
• Insurance premium for the machine per quarter: Rs. 720
• Estimated repairs and maintenance cost of the machine p.a.: Rs. 3,000
• Power consumption of the machine: 20 units per hour
• Rate of power per 100 units: Rs. 20
• Estimated working hours of the machine per year: 2,300
• Shop Supervisor’s salary per month: Rs. 1,800
• The machine occupies 1/4th of the total floor area of the shop.
• The supervisor is expected to devote 1/5th of his time for supervising the machine.
• Normal idle time is expected to be 300 hours per annum.
• Life assumed: 15 years (as per solution calculation in original Q11)

Solution: Computation of Machine Hour Rate

Step 1: Calculate Effective Working Hours
= 2,300 hours - 300 hours (idle time) = 2,000 hours

Step 2: Calculate Running Expenses Per Hour

• Depreciation = ((Cost + Installation) – Scrap Value) / Estimated Life = (Rs. 2,00,000 + Rs. 20,000 - Rs. 10,000) / 15 years = Rs. 2,10,000 / 15 = Rs. 14,000 p.a.
  Per hour = Rs. 14,000 / 2,000 hrs = Rs. 7.00
• Repairs & Maintenance = Rs. 3,000 p.a.
  Per hour = Rs. 3,000 / 2,000 hrs = Rs. 1.50
• Power = 20 units/hr * (Rs. 20 / 100 units) = 20 * 0.20 = Rs. 4.00 per hour

Step 3: Calculate Standing Charges Per Hour

• Rent (Shop) = Rs. 7,200 p.a. * 1/4 (area occupied) = Rs. 1,800 p.a.
• General Lighting (Shop) = Rs. 800 p.m. * 12 months * 1/4 (area occupied) = Rs. 2,400 p.a.
• Supervisor’s Salary = Rs. 1,800 p.m. * 12 months * 1/5 (time devoted) = Rs. 4,320 p.a.
• Insurance = Rs. 720 per quarter * 4 quarters = Rs. 2,880 p.a.
• Total Standing Charges = Rs. 1,800 + Rs. 2,400 + Rs. 4,320 + Rs. 2,880 = Rs. 11,400 p.a.
  Per hour = Rs. 11,400 / 2,000 hrs = Rs. 5.70

Particulars	Per Annum (Rs)	Per Hour (Rs)
Standing Charges:
(i) Rent	1,800
(ii) Electricity	2,400
(iii) Supervisor’s Salary	4,320
(iv) Insurance (720*4)	2,880
Total Standing Charges	11,400	5.70
Running Expenses:
(i) Depreciation	14,000	7.00
(ii) Repairs & Maintenance	3,000	1.50
(iii) Power	—	4.00
Total Machine Hour Rate		18.20

12. Calculate Machine Hour Rate from the details given below:

• Purchase price of machine: Rs. 4,00,000
• Installation Expenses: Rs. 1,00,000
• Rent per quarter: Rs. 15,000
• Foreman’s Salary p.a.: Rs. 30,000
• General lighting for the total area – p.m.: Rs. 1,000
• Insurance for the machine – p.a.: Rs. 3,000
• Repairs for the machine – p.a.: Rs. 5,000
• Estimated consumables – p.a.: Rs. 4,000
• Power: 2 units per hour at Rs. 50 per 100 units.
• Estimated life of the machine is 10 years and the estimated value at the end of 10 years is Rs. 1,00,000. It is expected to run 20000 hours in its life time. The machine occupies 1/4 of the total area. The foreman devotes 1/6 of his time on this machine.

Solution: Computation of Machine Hour Rate:

Step 1: Calculate Effective Working Hours
= 20,000 hours (total life hours) / 10 years = 2,000 hours per annum

Step 2: Calculate Running Expenses Per Hour

• Depreciation = ((Purchase Price + Installation Expenses) – Scrap Value) / Total Life Hours = (Rs. 4,00,000 + Rs. 1,00,000 – Rs. 1,00,000) / 20,000 hrs = Rs. 4,00,000 / 20,000 hrs = Rs. 20.00 per hour
• Repairs = Rs. 5,000 p.a.
  Per hour = Rs. 5,000 / 2,000 hrs = Rs. 2.50
• Consumables = Rs. 4,000 p.a.
  Per hour = Rs. 4,000 / 2,000 hrs = Rs. 2.00
• Power = 2 units/hr * (Rs. 50 / 100 units) = 2 * 0.50 = Rs. 1.00 per hour

Step 3: Calculate Standing Charges Per Hour

• Rent = Rs. 15,000 per quarter * 4 quarters * 1/4 (area occupied) = Rs. 15,000 p.a.
• Lighting = Rs. 1,000 p.m. * 12 months * 1/4 (area occupied) = Rs. 3,000 p.a.
• Insurance = Rs. 3,000 p.a.
• Foreman's Salary = Rs. 30,000 p.a. * 1/6 (time devoted) = Rs. 5,000 p.a.
• Total Standing Charges = Rs. 15,000 + Rs. 3,000 + Rs. 3,000 + Rs. 5,000 = Rs. 26,000 p.a.
  Per hour = Rs. 26,000 / 2,000 hrs = Rs. 13.00

Particulars	Per Annum (₹)	Per Hour (₹)
Standing Charges:
Rent (Rs. 15,000 × 4 × 1/4)	15,000
Lighting (Rs. 1,000 × 12 × 1/4)	3,000
Insurance	3,000
Foreman's Salary (Rs. 30,000 × 1/6)	5,000
Total Standing Charges	26,000	13.00
Running Expenses:
Depreciation ((Rs. 4,00,000 + 1,00,000 – 1,00,000) ÷ 20,000 hrs)	—	20.00
Repairs (Rs. 5,000 / 2,000 hrs)	—	2.50
Consumables (Rs. 4,000 / 2,000 hrs)	—	2.00
Power (2 units/hr * Rs. 50/100 units)	—	1.00
Total Running Expenses	—	25.50
Machine Hour Rate		38.50

13. The following expenses have been incurred in respect of a workshop having 5 identical machines and occupied equal space:

• Rent and Rates of workshop (per annum): Rs. 60,000
• Repairs and maintenance of 5 Machines (per annum): Rs. 10,000
• Lighting for Workshop (per annum): Rs. 20,000
• Power Charges of 5 Machines @ Rs. 2 per unit: Rs. 1,20,000
• Supervisor’s salary (per month): Rs. 15,000
• Attendant’s salary: Rs. 40,000
• Annual Interest on Hire-Purchase for Machine: Rs. 25,000
• Cotton for cleaning for the workshop (per annum): Rs. 1,000
• Depreciation on each Machine (per annum): Rs. 16,000
• Direct Wages: Rs. 1,20,000
• Each machine consumes 10 units of power per hour. Supervisor and Attendants spent equal time on each machine. Calculate Machine Hour Rate per machine.

Solution: Computation of Machine Hour Rate

Step 1: Calculate Working Hours per machine:
Total Power charges = Rs. 1,20,000
Rate per unit = Rs. 2/unit
Total units consumed by 5 machines = Rs. 1,20,000 ÷ Rs. 2/unit = 60,000 units
Units consumed per hour per machine = 10 units/hr
Total machine hours for 5 machines = 60,000 units ÷ 10 units/hr = 6,000 total machine hours
Working hours per machine = 6,000 hours ÷ 5 machines = 2,000 hours

Step 2: Calculate Running Expenses Per Hour

• Depreciation (per machine) = Rs. 16,000 p.a.
  Per hour = Rs. 16,000 / 2,000 hrs = Rs. 8.00
• R/M (per machine) = Rs. 10,000 p.a. / 5 machines = Rs. 2,000 p.a.
  Per hour = Rs. 2,000 / 2,000 hrs = Rs. 1.00
• Power (per machine) = 10 units/hr * Rs. 2/unit = Rs. 20.00 per hour

Step 3: Calculate Standing Charges Per Hour

• Rent and Rates (per machine) = Rs. 60,000 p.a. / 5 machines = Rs. 12,000 p.a.
• Lighting (per machine) = Rs. 20,000 p.a. / 5 machines = Rs. 4,000 p.a.
• Supervisor’s Salary (per machine) = (Rs. 15,000 p.m. * 12 months) / 5 machines = Rs. 1,80,000 / 5 = Rs. 36,000 p.a.
• Attendant’s Salary (per machine) = Rs. 40,000 p.a. / 5 machines = Rs. 8,000 p.a.
• Cotton for cleaning (per machine) = Rs. 1,000 p.a. / 5 machines = Rs. 200 p.a.
• Interest on Hire Purchase (per machine) = Rs. 25,000 p.a. / 5 machines = Rs. 5,000 p.a.
• Total Standing Charges = Rs. 12,000 + Rs. 4,000 + Rs. 36,000 + Rs. 8,000 + Rs. 200 + Rs. 5,000 = Rs. 65,200 p.a.
  Per hour = Rs. 65,200 / 2,000 hrs = Rs. 32.60

Particulars	Per Annum (₹)	Per Hour (₹)
Standing Charges:
Rent and Rates (₹60,000 ÷ 5)	12,000
Lighting (₹20,000 ÷ 5)	4,000
Supervisor’s Salary: ₹15,000 × 12 ÷ 5	36,000
Attendant’s Salary (₹40,000 ÷ 5)	8,000
Cotton for cleaning (₹1,000 ÷ 5)	200
Interest on Hire Purchase (₹25,000 ÷ 5)	5,000
Total Standing Charges	65,200	32.60
Running Expenses:
Depreciation (₹16,000)	—	8.00
R/M (₹10,000 ÷ 5)	—	1.00
Power: 10 units/hr @ ₹2/unit	—	20.00
Total Running Expenses	—	29.00
Machine Hour Rate		61.60

14. Compute the machine hour rate for the month of December 2022: 20

• Cost of Machine: ₹64,000
• Scrap Value: ₹4,000
• Effective Working Hours (Life): 10,000 hours
• Repairs and Maintenance (Life): ₹5,000
• Standing Charges (for December): ₹1,000
• Power Consumption Cost: ₹0.60 per unit
• Power Consumed: 10 units/hour
• Power Charges for December: ₹1,200

Solution: Computation of Machine Hour Rate

Step 1: Calculate Working Hours in December:
Given Power Charges for December = ₹1,200
Power cost per hour = 10 units/hr * ₹0.60/unit = ₹6/hr
Working hours in December = ₹1,200 ÷ ₹6/hr = 200 hours

Step 2: Calculate Running Expenses Per Hour

• Depreciation = (Cost – Scrap Value) / Effective Working Hours (Life) = (₹64,000 – ₹4,000) / 10,000 hrs = ₹60,000 / 10,000 hrs = ₹6.00 per hour
• R/M = Repairs and Maintenance (Life) / Effective Working Hours (Life) = ₹5,000 / 10,000 hrs = ₹0.50 per hour
• Power = 10 units/hr * ₹0.60/unit = ₹6.00 per hour

Step 3: Calculate Standing Charges Per Hour

• Standing Charges (given for December) = ₹1,000
  Per hour = ₹1,000 / 200 hours = ₹5.00

Particulars	For December (₹)	Per Hour (₹)
Standing Charges:
Standing Charges (given) [₹1,000 ÷ 200 hrs]	1,000	5.00
Running Expenses:
Depreciation ((₹64,000–₹4,000)÷10,000 hrs)	—	6.00
R/M (₹5,000 ÷ 10,000 hrs)	—	0.50
Power: 10 units/hr @ ₹0.60	—	6.00
Total Running Expenses	—	12.50
Machine Hour Rate		17.50