Overhead Absorption-questions

Overhead absorption

QUESTIONS-ANSWERS

Methods Of Overhead Absorption

Machine Hour Rate

Hourly Rates

OHAR=POHEs for the periodNo.Of Machine Hours

Most Popular Method

Can be fixed for a Machine or Group Of Machines

Computing Machine Hour RateComputing Machine Hour Rate

Cost of

PowerSteamOilRepairsMaintenanceDepreciation

Cost OfRent & RatesLighting &HeatingSupervisionInsuranceCotton WasteIndirect LabourConsumable StoresLubricants

Machine Running ExpensesOr

Variable Expenses

Standing ExpensesOr

Fixed Expenses


Machine Hour Rate

Hourly Rates

Common Costs to be apportioned

Both Fixed/variable costs be divided by Machine Hrs

Machine Hr represents Cost of Operating Machine for One Hour

Time spent on cleaning, warming may be excluded from Machine hours

Time spent on Normal Setting Up may be included

Cost of reserve machine ( Motor ) may be considered


Machine Hour Rate

Hourly Rates

Common Costs to be apportioned

Uniform Period Basis For Apportionment

Variable Cost Calculation

Depreciation

Maintenance

1. Calculate the machine hour rate from the following data:

Cost of machine Rs 19,200

Scrap value Rs 1,200

Repairs and maintenance per month Rs 150

Standing charges per month Rs 50

Effective working life 10,000 hours

Running time per month 200 hours

Power used 5 units at 18 paise per unit per hour.

1. Computation of Machine Hour Rate

Particulars Per Hour (Rs)

50 Standing charges -------- 200

Variable charges : 19,200 - 1,200Depreciation --------------------- 10,000

150Repairs and maintenance ------- 200

Power : 5 units per hour @ 18 paise

0.25

1.80

0.75

0.90

Machine Hour Rate 3.70

2) From the following particulars, calculate the machine hour rate for machine X:

Cost of the machine Rs 42,000

Estimate scrap value 2,000Estimated working life: 1O years of 2000 hours per yearRunning rime for a four week period: 150 hoursEstimated repairs for life Rs 10,000Standing charges allocated to this machine per week Rs 300Power consumed per hour: 5 units @ 10 paise per unit

Particulars Per Hour (Rs.)

300 x 4Standing charges ------------- 150

Variable charges : 42,000 – 2,0000Depreciation -------------------- 10 x 2,000

10,000Repairs -------------------- 10 x 2,000

Power consumed : 5 units per hour @ 10 paise

8.00

2.00

0.50

0.50



3. Work out the machine hour rate for the following machine:

Cost of machine Rs 90,000

Freight and installation charges Rs 10,000

Working life 10 years

Working hours 2,000 per year

Repair charges 50%of depreciation

Power 10 units per hour @ 10 paise per unit

Lubricating oil @ Rs 2 per day of 8 hours

Consumable stores @ Rs 10 per day of 8 hours

Wages of operator @ Rs 4 per day

Particulars Per hour (Rs.)

Standing charges :

Lubrication oil Rs.2 per day

Consumable stores Rs.10 per day

Wages of operator Rs. 4 per day

____________________Total Rs.16 per day of 8 hrs. ___________________

Standing charges per hour (16 ÷ 8)

90,000 + 10,000Depreciation ----------------------- 10 x 2,000

Repairs charges : 50% of depreciation

Power : 10 units @ 10 paise per unit

2.00

5.00

2.50

1.00



4. A machine costing Rs 10,000 is expected to run for 10 years at the end of which period its scrap value is likely to be Rs 900. Repairs, during the whole life of the machine are expected to be Rs 1,800 and the machine is expected to run 4,380 hours per year on the average. Its electricity consumption is 15 units per hour, the rate per unit being 5 paise. The machine occupies one fourth of the area of the department and has two points out of a total of ten for lighting. The foreman has to devote about one-third of his time to the machine. The monthly rent of the department is Rs 300 and the lighting charges amount to Rs 80 per month. The foreman is paid a monthly salary of Rs 480. Ascertain the machine hour rate


Particulars

Per annum (Rs.)

Per hour (Rs.)

Standing charges :

Rent (300 x 1 x 12) 4Lighting (80 x 2 x 12) 10Foreman’s salary (480 x 1 x 12) 3Total Standing charges

Standing charges per hour (3,012 ÷ 4,380)

Variable charges : 10,000 – 900Depreciation ------------------- 10 x 4,380 1,800Repairs ----------------- 10 x 4,380

Power : 15 units per hour @ 5 paise per unit

900

192

1920

__________

3012

--------------

0.69

0.21

0.04

0.75

Machine hour rate 1.69

5. Compute the machine hour rate from the following data:

Cost of the machine Rs 1,00,000

Installation charges Rs 10,000

Scrap value after its life (15 years) Rs 5,000

Rent and rates for the shop per month Rs 200

General lighting for the shop per month Rs 300

Insurance premium for the shop per annum Rs 960

Repairs and maintenance expenses per annum Rs 1,000

Power consumption 10 units per hour,

rate of power for 100 units Rs. 20

Estimated working hours per annum 2,200 hrs

(this includes setting up time of 200 hours)

Shop supervisor's salary per month Rs 600

The machine occupies 1/4th of the total area of the shop. The supervisor is expected to devote 1/5th of his time for supervising this machine.

Particulars Per annum (Rs.)

Per hour (Rs.)

Standing charges :Rent and rates for the shop 200 x 1 x 12 4General Lighting 300 x 1 x 12 4

InsuranceSupervisor’s salary 600 x 1 x 12 5

Total Standing charges


Variable charges : 1,00,000 + 10,000 – 5,000Depreciation -------------------------------- 15 x 2,000 1,000Repairs and maintenance ---------- 2,000

Power consumption : 10 units per hour @ Rs.20 per 100 units

600

900

960

1,440

_________3,900--------------

1.95

3.50

0.50

2.00



6. Calculate the machine hour rate from the following particulars:

Rs

Cost of the machine 95,000

Installation charges 10,000

Estimated value of scrap at the end of the life (10 years) 5,000

Estimated working hours per annum 2,200 Hrs.

Rent and Rates for the shop per month 250

Supervisor's salary per month 700

General lighting for the shop per month 300

Rate of power per 100 units 50

Power consumption 10 units per hour. The machine occupies 1/4th of the total area of the shop. The supervisor is spending 1/5th of his time for this particular machine.



Per Hour (Rs.)

Standing charges

Rent 250 x 12 x 1 4

Supervisor’s Salary 700 x 12 x 1 5

General lighting 300 x 12 x 1 4Total standing charges

Standing charges per hour (3,330 ÷ 2,200)Variable charges :

Depreciation 1,00,000 + 10,000 – 5,000 10 x 2,200

Power : 10 x 50 100

750

1,680

900---------3,300---------

1.51

4.77

5.00

Machine Hour Rate

11.28

7. A machine costs Rs 90,000 and deemed to have a scrap value of 5% of purchase price at the end of its life of 19 years. The machine works for 1,500 hours per annum. The other details of the machine are:

Rs

a) Wages of operator (the operator is in-charge

of two machines) 6,000 per year

b) Rent and rates of the shop (shop houses 4 machines 3,000 per year

c) Lighting of the shop 250 per month

d) Insurance on the machine 200 per quarter

e) Cost of repairs and maintenance 250 per month

f) Shop supervisor's salary 500 per month

g) Power consumption of machine: 20 units per hour at

the rate of Rs 10 per 100 units

h) Factory overhead for the shop Rs 4,000 per year

Compute the machine hour rate.



Per Hour (Rs.)

Standing charges

Rent and Rates ( 3000 ÷ 4 )

Wages of operator ( Rs. 6,000 ÷ 2)Lighting ( 250 x 12 ) 4Insurance : ( 200 x 12 ) 3 x 4

Supervisor’s salary : ( Rs. 6,000 ÷ 4 )

Factory overhead : (Rs. 4,000 ÷ 4 )

Total Standing charges

Standing charges per hour (7,200 ÷ 1,500 )

Variable charges 90,000 - 4,500Depreciation -------------------------- 19 x 1,500

Repairs & maintenance Rs.250 x 12 1,500

Power consumption : 20 x 10 100

750

3,000

750

200

1,500

1,000-----------7,200-----------

4.80

3.00

2.00

2.00


8. Calculate the machine hour rate for the month of January to cover the overhead expenses, given below, relating to a machine.

Rs

1. Rent of the Department 780 p.a.

(1/5th area is occupied by the machine)

2. Lighting (out of 12 points, 2 are for this machine) 288 p.a.

3. Insurance 36 p.a.

4. Cotton, wastes etc. 60 p.a.

5. Foreman's salary (1/4th for the machine) 6,000 p.a.

6. Cost of machine 9,200

7. Scrap 200

It is assumed that machine will work for 1,800 hours p.a. and that will incur Rs 1,125 for repairs and maintenance for life. It is further assumed that 5 units of power would be used per hour available at 6 paise per unit, and that the life of machine will be of 10 years.


Particulars Per annum (Rs)

Per Hour (Rs.)

Standing charges :

Rent ( 780 x 1/5)

Lighting ( 288 x 2/12)

Foreman’s salary (6,000 x ¼)

Insurance

Cotton waste etc.

Total standing charges

Standing charges per hour (1,800 ÷ 1,800 )

Variable charges : 90,000 - 200Depreciation ---------------------- 10 x 1,900

Repairs ( 1,125 ÷ 1,800 x 10 )

Power 5 units @ 6 paise per unit

156.00

48.00

1,500.00

36.00

60.00

------------

1,800.00

1.00

0.50

0.06

0.30


9. The following information is given:

1. The original cost. of the machine used (purchased in June 1998) was Rs 10,000. Its estimated life is 10 years, the estimated scrap value at the end of its life is Rs 1,000 and the estimated working time per year (50 weeks of 44 hours) is 2,200 hours of which machine maintenance, etc. is estimated to take up 200 hours.

2. Setting up time of 100 hours is estimated

3. Electricity used by the machine during production is 16 units per hour at a cost of 20 paise per unit. No current is taken during maintenance or setting up.

4. The machine requires a chemical solution which is replaced at the end of each week at a cost of Rs 20 each time.

5. The estimated cost of maintenance per year is Rs 1,200

6. Two attendants control the operation of the machine together with five other identical machines. Their combined weekly wages, insurance, and the employer's contributions to holidays pay amount to Rs 120.

7. Departmental and general works overheads allocated to this machine for the year 1998 amount to Rs 2,000.

Calculate machine hour rate when

(a) Setting up time is unproductive

(b) Setting up-time is productive

9. Computation of Machine Hour

a) When setting up time is unproductive

Effective working hours are computed as shown below :

Annual working hours (50 x 44) 2200 hrs

Less - Maintenance time 200 hrs

---------------

2000 hrs

Less - set up time 100 hrs.

---------------

Effective working hours 1900 hrs

---------------

9.a Computation of Machine Hour


Standing charges 120 x 50(a) Wages of attendants ---------------------- 6 x 1,900

(b) Departmental and general works overheads (2,000 ÷ 1,900)

Standing charges per hour Total

Variable charges 10,000 - 1,000(a) Depreciation ----------------------- 10 x 1,900 20 x 50(b) Chemical Solution ---------------- 1,900

(c) Electricity ( 16 x 20 paise)(d) Maintenance ( 1,200 + 1,900)

0.53

1.05---------1.58--------

0.47

0.53

3.200.63


9. (b) When setting up time is productive

Annual working hours 2,200

Less : Maintenance time 200

---------------------

Effective working hours 2,000

--------------------


Standing charges : 120 x 50(a) Wages of attendants ------------------- 1,000.00 6

(b) Departmental and general work overheads 2,000.00

Standing charges per hour 3000 divided by 2000

Variable charges : 10,000 – 1,000(a) Depreciation ----------------------- 10 x 2,000

20 x 50(b) Chemical Solution -------------- 2,000

1,900 x 16 x 0.20(c) Electricity -------------------------- 2,000

(d) Maintenance (1,200 ÷ 2,000)

0.50

1.00

-----------

1.50

0.45

0.50

3.04

0.60


9.b Computation of Machine Hour Rate

10. The following particulars relate to a new machine

Rs.

Purchase price 4,00,000

Installation expenses 1,00,000

Rent per quarter 3,750

General lighting for the total area 1,000 per month

Foreman’s salary 30,000 per annum

Insurance premium for the machine 3,000 per annum

Estimated repairs for the machine 5,000 per annum

Consumable Stores 4,000 per annum

Power consumed 2 units per hour at Rs.50 per 100 units. The estimated life of the machine is 10 years and scrap value at the end of 10th year is Rs.1,00,000. The machine is expected to run 20,000 hours in its lifetime. The machine occupies 25% of total area. The foreman devotes 1/6th of his time for the machine. Calculate machine hour rate for the machine.

10. Calculation of Machine Hour Rate


Per Hour (Rs.)

Standing Charges

3,750 x 4Rent ----------------- 4 1,000 x 12Lighting --------------------- 4 30,000Foreman’s Salary ------------- 6InsuranceStores

Total Standing Charges


Variable charges : 4,00,000 + 1,00,000 - 1,00,000Depreciation -------------------------------------------- 10 x 2,000 5,000Repairs ---------- 2,000 2 x 50Power ------------------------ 100

3,750

3,000

5,000

3,000

4,000

--------

18,750

--------

9.375

20.000

2.500

1.000


11. From the following particulars, compute Machine Hour Rate :

Rs.

Cost of Machine 1,14,800

Installation charges 5,400

Anticipated life of machine 10 years

Residual value at the end of 10 years 5,000

Rent and rates per annum 12,000

Insurance of the machine p.a. 3,000

Repairs and maintenance p.a. 8,640

Consumable stores p.a. 1,200

Total production services p.a. 1,080

Power cost is 5 units per working hour @ 40 paise per unit

Setting up time

(non-productive) 400 hrs. p.a.

There are 300 working days of eight hours in a year.



Per Hour (Rs.)

Standing charges

Rent and Rates

Insurance

Consumable Stores

Production Services


Standing charges per hour (1`7,280 ÷ 2,000)

Variable charges :

1,14,800 + 5,400 - 5,000

Depreciation -----------------------------------

10

Power ( 300 x 8 x 5 x 0.40)

Repairs and maintenance

12,000

3,000

1,200

1,080

--------------

17,280

-------------

11,520

4,800

8,640

8.64

Total 24,960 12,48


12. From the following information, compute machine hour rate

Cost of the machine Rs. 3,00,000

Expenses on installation and freight charges Rs. 25,000

Estimated scrap value at the end Rs. 25,000

Insurance premium Rs. 480 p.a.

Standing charges allocated to the machine Rs. 480 p.m.

Effective working life of the machine 24,000 hours

Hours worked during the month 240 hours

Repairs during the effective life of the machine Rs. 24,000

Power consumed by the machine is 20 units per hour at a cost of 25 paise per unit. Additional charges at 5 paise per unit are payable on the total units consumed if the same exceeds the basic consumption of 2000 units per month.



Per hour (Rs.)

Standing charges

Standing charges 480 x12

Insurance


Standing charges per hour (6260 ÷ 2880)

Variable charges : 3,00000 + 25,000 - 25,000Depreciation ------------------------------------ 2,4000 hours

Repairs ( 24,000 ÷ 24.000 )

Power ( 0.30 x 20 )

5760

480

6260 2.17

12.50

1.00

6.00


13. Compute machine hour rate from the following data :

Cost of the machine Rs. 1,44,000

Installation charges Rs. 6,000

Estimated scrap value at the end Rs. 6,000

Effective working life of the machine 12,000 hours

Estimated repairs over the effective

working life of the machine Rs. 12,000

Standing charges allocated to the machine

per year Rs. 5,760

Power bill per year Rs. 7,200

Power consumed by the machine is 20 units per hour at a cost of 25 paise

per unit.

13. Computation of Machine Hour Rate No. of machine hours : 1440*


Per Hour (Rs.)

Standing charges

(i) Standing charges allocated to the machine


Standing charges per hour

Variable charges

1,44,000 + 6,000 - 6,000

(i) Depreciation -----------------------------------

12,000

12,000

(ii) Repairs -----------

12,000

(iii) Power (20 units x 25 P)

5,760

------------

5,760

-----------

4.00

12.00

1.00

5.00


Computation of Machine Hours :

•Power bill per year = Rs.7,200 Power bill per hour = 20 units x 25 p. = Rs.5

Therefore No.of machine hours per annum = 7,200/5 = 1,440 hours

Documents

Overhead Absorption-questions