Example for Two tier machine hour rate

In a factory, a machine is considered to work for 208 hours in a month. It includes maintenance time of 8 hours and set up time of 20 hours.

The expense data relating to the machine are as under :

-          Cost of the machine is Rs. 5,00,000. Life 10 years. Estimated scrap value at the end of life is Rs. 20,000.

-          Repairs and maintenance per annum : Rs. 60480

-          Consumable stores per annum : Rs. 47,520

-          Rent of building per annum (The machine under reference occupies 1/6 of the area) : Rs. 72,000

-          Supervisor’s salary per month (Common to 3 machines) : Rs. 6,000

-          Wages to operator per month per machine : Rs. 2,500

-          General lighting charges per month allocate to the machine : Rs. 1,000

-          Power 25 units per hour at Rs. 2 per unit.

Power is required for productive purposes only. Set up time, though productive, does not require power. The Supervisor and Operator are permanent. Repairs and maintenance and consumable stores vary with the running of the Machine.

Calculate the two-tier machine per hour rate for (a) set up time, and (b) running time. 

Solution.

Particulars	Setup Time 20 Hours	Running Time 180 Hours
Standing Charges Depreciation  (500000-20000)  = 48000 in the ratio of  2:18                                       '10 Rent (72000*1/6)= 12000 in 2:18 Supervisor Salary (6000*12*1/3)  in 2:18 Operator Wages (2500*12)  in 2:18 Lighting Charges (1000*12)  in 2:18	4800 1200 2400 3000 1200	43200 10800 21600 27000 10800
Total Standing Charges Standing Charges Per Month Standing charges Per hour          - Setup (Rs. 1050/ 20 Hours)                   - Running ( Rs. 9450/ 180 Hours ) Running Charges Power (25 units *2 ) Repair & maintenance                  (60480+47520) / 12months * 180 hours	12600 1050 52.50 --------- ---------	113400 9450 52.50 50 50
MACHINE HOUR RATE	52.50	152.50

Working Notes

1 .) Calculation of Running Time

Normal hours per month                     208

(-)  Repair & maintenance Hour              8

(-) Setup Hours                                     20                                                                                                                                                          180