A company having a factory in Chennai has a 8 machineries in the process of manufacture. The company has purchased a new machinery costing -…

CA Intermediate · Cost and Management Accounting · MTP · May 2025
A company having a factory in Chennai has a 8 machineries in the process of manufacture. The company has purchased a new machinery costing - 19,05,000 with a useful life of 12 years and a salvage value of 1,05,000 at the end of its useful life. The following data are as follows: (i) The factory works for 324 days a year with 8 hours shift daily. Plant maintenance of 300 hours and set up of 92 hours are included in the above. (ii) Estimated cost of maintenance of a machine is 37,500 per annum. (iii) Operators wages amounts to 3,630 per week with additional benefits of 15%. 4 Operators are required to operate the machinery. (iv) Electricity consumed during production is 16 units per hour at a cost of 4.5 per unit. No power is consumed during maintenance and set up. (v) General overheads allocated amounts to 75,000 upto the prior year is expected to increase by 10% during the current year. (vi) Special performance chemical at 600 for every 6 days of operation. DETERMINE Machine hour rate if set up time is (a) productive (b) unproductive.

Suggested Answer and Working Notes:

(c) Statement of Overhead costs Particulars Computation Amount (₹) Depreciation (19,05,000 – 1,05,000)/12 1,50,000 Operator's wages (₹ 3,630 × 4 Operators × 54 Weeks × 115%) / 8 Machines 1,12,711.5 Maintenance Cost Given -37,500 37,500 Electricity (2,592 hours - 392 hours) x 16 x 4.5 1,58,400 General Overhead allocated (75,000 x 110%)/8 machines) 10,312.5 Performance Chemical (₹ 600/6 days) x 324 32,400 Total Overheads 5,01,324 Computation of Machine Hour Rate When set up time is productive, Effective machine hours = 2,592 hours – 300 hours maintenance = 2,292 hours Hence Machine hour rate = 5,01,324/2,292 = 218.73 When set up time is unproductive, Effective machine hours = 2,592 hours – 300 hours maintenance – 92 hours set up = 2,200 hours. Machine hour rate = 5,01,324/2,200 = 227.87 per hour

Topics: Overheads - Absorption Costing Method

Open in Interactive Practice Hub · Full Practice Hub · Chapter Weightage · More in this subject

Related Questions in this Topic