(1) Additional data concerning the operating time of machines, not otherwise necessary, must be recorded and maintained. (2) As general data concerning rates for all the machines in a department may be suitable, the computation of a separate machine hour rate for each machine or group of machines would mean additional work. (3) It gives inaccurate result if hand labour is equally important. If production is carried on in different departments having different degrees of mechanisation, the best method would be the machine hour rate. The machine may be treated as a small department or cost centre and the total cost for, say, a month may be divided by the effective hours for which the machine is usually used. Suppose the total cost of running a machine, including, expenses on rent. lighting, insurance, supervision, depreciation, power, etc. for a month is 12,600 and the total number of hours is 200 including 20 for maintenance, the machine hour rate is 870 i.e. 12,600. If the machine is used on job for 5 hours, the 180 job should be charged with 350 i.e. 370 5 as production overheads. [In small firms however, quite good results are obtained by working out the percentage of factory overheads to direct wages or by dividing the total factory overheads by the total number of direct labour hours (productive labour hour rate); production overheads may then be charged to jobs or products using one of these methods. Office expenses are usually charged as a percentage of works cost). Illustration 4 Following information is made available from the costing records of a factory: The original cost of the machine 31,00,000 Estimated life 10 years Residual Value 35,000 Factory operates for 48 hours per week 52 weeks in a year Allow 15% towards machine maintenance down time. 5% (of productive time assuming unproductive) may be allowed as setting up time. (1) Electricity used by the machine is 10 units per hour at a cost of 50 paise per unit. a32 (ili) Repair and maintenance cost is 500 per month. (iv) Two operators attend the machine during operations alongwith two other machines. Their total wages including fringe benefits, amounting to 5,000 per month is paid. (V) Othe overheads attributable to the machine are 10,431 per year. Using above data, calculate machine hour rate