Explain various departmental overheads used in machine hour rate of depreciation.

Departmental overheads used in machine hour rate of depreciation are classified into following types −

  • Fixed
  • Variable

Fixed charges − These are constant charges irrespective of machine hours. Rent, taxes, insurance, general expense etc.

Some of the fixed charges are as mentioned below −

Fixed expensesBasis
RentFloor area occupied by machine
InsuranceBased on capital value of machine
SupervisoryExpenses to supervisory staff
HeatingBased on technical estimates
GeneralEqual to all other machines
LubricantsNature of machine

Variable charges − These charges are different from machine to machine. Depreciation of machine, maintenance charges, power etc. are variable charges.

  • Depreciation of machine

Machines consists of both fixed and variable parts of depreciation, but calculating them separately is difficult, so generally, total parts of machine are considered as variable charges. Cost of machine includes purchase cost, freight and installation charges. In this, only scrap value is considered.

(Depreciation) hourly = (machine cost – scrap value of machine)/machine working hours
  • Repairs and maintenances

Depending upon whether the repairs and maintenances are for lifetime or for particular time, the charges calculated respectively.

Repairs or maintenances = repair or maintenances charges/ working hours

Power expenses

  • (Power charges) yearly / (working hours) yearly
  • Units consumed * (rate of power) unit

Base period

Depending on the firm base period is taken. It varies from daily, weekly, monthly, quarterly, half-yearly and annually or yearly. Depending upon requirement base period is taken.

Updated on: 29-Sep-2020


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