Machine Hr Rate

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Q1: what is machine hour rate? A1: Machine hour rate or MHR is the overhead recovery rate, which is calculated to absorb machine cost to various products. Suppose there are 5 machines which perform various tasks in the manufacturing of any product. Every machine cost comprising of the following has to be absorbed in the product: 1. machine deprecation 2. power 3. fuel, accessories and lubricants 4. operator’s wages 5. cleaner’s wages 6. lighting 7. rent 8. insurance 9. taxes 10.interest on capital (where applicable) 11.Other costs. Once the MHR for each machine is calculated, then product cost can be calculated using the following formula: • Machine hour rate X hours consumed by each product in the production process.

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Q2: what types of machine hour rate are usually calculated? A2: the machine hour rates are of two types (usually)

MHR

Single machine hour rate or comprehensive machine hour rate.

Dual Machine hour rate

Set-up hourly rate

Productive hour rate

The single rate is usually calculated when there is one product in the manufacturing process. However, when the number of products involved is more than one then calculation of Machine hour rate in dual mode becomes a necessity. This is for the simple reason that not every product is consuming the same activities on the machine. Like some products may be using more set-up hours as compared to others hence calculating one rate will render the cost inaccurate and consequently the whole process of costing becomes meaningless. Therefore in the event of more than product dual rate is recommended until and unless circumstances warrant otherwise Q3: What are the steps involved in calculating the machine hour rate? A3: The steps involved in MHR are as follows: 1. Calculate machine hours worked. This may be single or dual a. Single means productive hours b. Dual means productive hours and set...