Question

If Fixed Cost is Rs.1,25,000, 0 Direct Wages is 60,000, Direct Material is Rs. 90,000, Machine Hours are 50,000, Labour Hours are 75,000. Then calculate the overhead recovery rate as per Machine Hour rate? ​

Answer 1

The Machine hour rate will be ₹2.5

Explanation:

• In the cost accounting, overheads are charged on the estimation basis, we take an estimated basis on the basis of which we allocate the whole overheads ( a recovery rate).
• Like on the basis of machine hour, labor hour, number of employees, etc.,
• At the year-end, there can be a chance that there comes a difference in the actual and estimated overheads charged.
• To fix the problem of under or over absorption, we use the supplementary rate and put the difference of the value in the costing profit and loss account.

 Recovery rate as per machine hour rate = Fixed cost/machine hours

                                                             = 125000/50000

                                                             = ₹2.5