Question

19. An engineering company, engaged in the manufacture of various heavy

engineering products, has installed one Pegard Numerical Control
Horizontal Borer for specialized manufacturing operations. Calculate
the machine hour rate on the basis of the following particulars:
(i) F.O.B. cost of the machine: 24 lakhs. (ii) Customs duty, insurance,
freight, etc. 11 lakhs. (iii) Installation expenses: 3 lakhs. (iv) Cost of
tools adequate for 2 years only: 4 lakhs. (v) Cost of machine room;
*3 lakhs. (vi) Cost of air conditioning for machine room * 2 lakhs; (vii)
Rate of interest on term loan to finance the above capital expenditure
12% p.a. (viii) Salaries for operators and supervisory staff: *2 lakhs per
annum. (ix) Cost of electricity: 11 per hours. (x) Consumption of
stores: 5,000 p.m. (xi) Other expenses: 5 lakh p.a. (xii) Assume rate
of depreciation as 10% p.a. on fixed assets. (xiii) Total working hours in
the machine room is 200 hour's in a mount. (xiv) Loading and unloading
time is 10% of machine time. (xv) You can make suitable assumptions,
if necessary, for the purpose your computations.
of
(B.Com, Osmania, SVU, ICWA-Inter) (Ans. 915.20)

Answer 1

The machine hour rate for the Pegard Numerical Control Horizontal Borer is 22,666.67.

Step-by-step explanation:

To calculate the machine hour rate, we need to consider several factors:

1. The total cost of the machine, which includes the F.O.B cost, customs duty, insurance, freight, etc. This is 24 lakhs + 11 lakhs = 35 lakhs.
2. Installation expenses: an additional 3 lakhs.
3. Cost of tools adequate for 2 years only: 4 lakhs.
4. Cost of machine room: 3 lakhs.
5. Cost of air conditioning for machine room: 2 lakhs.
6. Annual salaries for operators and supervisory staff: 2 lakhs.
7. Cost of electricity: 11 per hour.
8. Monthly consumption of stores: 5,000.
9. Other expenses: 5 lakhs per annum.
10. Rate of interest on term loan: 12% per annum.
11. Rate of depreciation: 10% p.a. on fixed assets.
12. Total working hours in the machine room: 200 hours per month.
13. Loading and unloading time is 10% of machine time.

Now, let's calculate the machine hour rate:

1. Calculate the annual interest on the term loan: 35 lakhs * 12% = 4.2 lakhs.
2. Calculate the annual depreciation on the fixed assets: 35 lakhs * 10% = 3.5 lakhs.
3. Calculate the annual salaries for operators and supervisory staff: 2 lakhs.
4. Calculate the annual cost of electricity: 11 * 200 * 12 = 26,400.
5. Calculate the annual consumption of stores: 5,000 * 12 = 60,000.
6. Calculate the total annual cost: 35 lakhs + 3 lakhs + 4 lakhs + 3 lakhs + 2 lakhs + 2 lakhs + 4.2 lakhs + 3.5 lakhs + 2 lakhs + 26,400 + 60,000 + 5 lakhs = 54.4 lakhs.
7. Calculate the total working hours in a year: 200 * 12 = 2,400 hours.
8. Calculate the machine hour rate: 54.4 lakhs / 2,400 = 22,666.67.

Therefore, the machine hour rate is 22,666.67 (or approximately 22,666.67).