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 final machine hour rate, accounting for various costs and adjustments, is ₹230,000 per hour, ensuring comprehensive consideration of operational expenses and capital investments.

To calculate the machine hour rate, you need to consider various costs associated with the machine and its operation. The machine hour rate is the total cost per hour of operating the machine.

Calculate the Total Cost:

F.O.B. cost of the machine: ₹24 lakhs

Customs duty, insurance, freight, etc.: ₹11 lakhs

Installation expenses: ₹3 lakhs

Cost of tools adequate for 2 years: ₹4 lakhs

Cost of machine room: ₹3 lakhs

Cost of air conditioning for the machine room: ₹2 lakhs

Total cost = ₹24 lakhs + ₹11 lakhs + ₹3 lakhs + ₹4 lakhs + ₹3 lakhs + ₹2 lakhs = ₹47 lakhs

Calculate Annual Costs:

Salaries for operators and supervisory staff: ₹2 lakhs per annum

Cost of electricity: ₹11 per hour * 200 hours per month * 12 months = ₹26,400 per annum

Consumption of stores: ₹5,000 per month * 12 months = ₹60,000 per annum

Other expenses: ₹5 lakhs per annum

Annual costs = ₹2 lakhs + ₹26,400 + ₹60,000 + ₹5 lakhs = ₹7,86,400

Calculate Interest on Term Loan:

Rate of interest on term loan: 12%

Interest on term loan = ₹47 lakhs * 12% = ₹5.64 lakhs

Calculate Depreciation:

Rate of depreciation: 10%

Depreciation = ₹24 lakhs * 10% = ₹2.4 lakhs

Calculate Total Annual Cost:

Total annual cost = Annual costs + Interest on term loan + Depreciation

Total annual cost = ₹7,86,400 + ₹5.64 lakhs + ₹2.4 lakhs = ₹16.9 lakhs

Calculate Total Machine Hours:

Total working hours in the machine room per month: 200 hours

Loading and unloading time (10% of machine time): 0.1 * 200 hours = 20 hours

Total machine hours per month = 200 hours + 20 hours = 220 hours

Calculate Machine Hour Rate:

Machine hour rate = Total annual cost / Total machine hours per annum

Machine hour rate = ₹16.9 lakhs / 220 hours = ₹76,818.18 per hour

Adjust for 2 years of tool cost:

Additional tool cost for 2 years: ₹4 lakhs

Adjusted total cost = Total cost + Additional tool cost = ₹47 lakhs + ₹4 lakhs = ₹51 lakhs

Recalculate Machine Hour Rate:

Adjusted machine hour rate = Adjusted total cost / Total machine hours per annum

Adjusted machine hour rate = ₹51 lakhs / 220 hours = ₹231,818.18 per hour

Final Adjusted Machine Hour Rate:

Subtract the tool cost for 2 years from the adjusted machine hour rate

Final machine hour rate = Adjusted machine hour rate - (Tool cost for 2 years / Total machine hours per annum)

Final machine hour rate = ₹231,818.18 - (₹4 lakhs / 220 hours) = ₹231,818.18 - ₹1,818.18 = ₹230,000 per hour

Therefore, the final machine hour rate is ₹230,000 per hour.