Machine Hour Rate Computation A machine hour rate computation is a process used in cost accounting to determine the cost per machine hour, which is a measur...
Machine Hour Rate Computation
A machine hour rate computation is a process used in cost accounting to determine the cost per machine hour, which is a measure of how much each machine hour costs the business.
Factors to Consider in Machine Hour Rate Computation:
Direct labor hours: The number of direct labor hours worked on the machine during a specific period.
Direct labor costs: The total cost of direct labor hours worked.
Indirect labor hours: The number of indirect labor hours used to operate the machine.
Indirect labor costs: The total cost of indirect labor hours worked.
Machine hours: The total number of machine hours operated during the period.
Formula for Machine Hour Rate:
Machine Hour Rate = Direct Labor Costs + Indirect Labor Costs ÷ Machine Hours
Example:
A machine operates for 50 hours in a month.
Direct labor costs are $10 per hour.
Indirect labor costs are $5 per hour.
Machine hours are 50.
Machine Hour Rate Calculation:
Benefits of Machine Hour Rate Computation:
Provides a precise measure of machine operating costs.
Helps identify areas where labor costs can be reduced.
Can be used to allocate overhead costs to specific machines or products