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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 expenses | Basis |
|---|---|
| Rent | Floor area occupied by machine |
| Insurance | Based on capital value of machine |
| Supervisory | Expenses to supervisory staff |
| Heating | Based on technical estimates |
| General | Equal to all other machines |
| Lubricants | Nature 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.
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