The following particulars refer to a process used in the treatment of a material subsequently used in
Question:
The following particulars refer to a process used in the treatment of a material subsequently used in another product.
(a) The estimated cost of repair and maintenance per year is $ 2,500.
(b) two attendants control the operations of the machine. Their combined monthly wages, insurance, etc. amounts to $500.
(c) The general overheads of this department allocated to this machine for the year are $ 4,200.
(d) The machine requires an oil when it is running. This oil is needed weekly and costs $50 every time.
(e) The electricity used by this machine during production is 20 units per hour at a cost of 40 cents per unit. Note, no current is used during setting up.
(f) The cost of the machine was 20,000 $ when purchased in 2015. Its estimated useful life is 10 years. The machine can be scrapped for $ 2,000 after its effective life.
Additional information:
The machine's working time per year is 2080 hours (52 weeks of 40 hours). Out of these working hours, 80 hours are used up in setting up, which is regarded as productive time. These working hours also include maintenance of 100 hours.
You are required to calculate the machine-hour rate necessary to provide for recoupment of the cost of operating the machine.