![]() This base period is the period for which the hourly rate is to be computed (it may be a year, quarter, month, or week). To this end, the following fundamental factors should be considered: (i) Base PeriodĪ base period is taken for every machine to compute the machine hour rate. To compute the machine hour rate, each machine or a group of similar machines in a production department is considered a smaller department, and departmental expenses are re-apportioned to the machines or groups of machines in the department. In these companies, most of the factory expenses result from machine operations. This basis for the recovery of overheads is adopted in industrial concerns where most of the work is driven by machines. ![]() The machine hour rate is computed to recover or absorb factory overheads. In Thothadri, Nafeesa, and Jalalutheen's seminal 2019 book entitled Cost Accounting, the machine hour rate is defined as follows: An actual or pre-determined rate of cost apportionment or overhead absorption which is calculated by dividing the cost to be apportioned or absorbed by the number of hours for which a machine or machines are operated or expected to be operated. ![]() It is obtained by dividing the factory expenses associated with the machine for a given period by the number of hours worked by the machine during that period. A machine hour rate is the hourly cost in terms of factory overheads to operate a particular machine. ![]()
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