Q.From the following particulars, compute the machine hour rate of a machine.
Cost of machine ₹90,000; estimated scrap value ₹10,000; effective working life 10 years; effective working hours per year 2,000. Annual expenses: rent and rates ₹4,800; supervision ₹6,000; insurance ₹1,200; power ₹4,000; repairs and maintenance ₹2,000.

The machine's overhead is split into standing (fixed) charges spread over the year's machine hours and running expenses expressed per machine hour, then added together.

The machine hour rate is the total overhead of the machine expressed per hour of running. The overhead is split into standing (fixed) charges and machine (running) expenses; each is reduced to a per-hour figure over the 2,000 effective machine hours, and the two are added.

Step 1 — Standing (fixed) charges per year:

• Rent and rates ₹4,800
• Supervision ₹6,000
• Insurance ₹1,200
• Total standing charges = ₹12,000
• Standing charge per machine hour = 12,000 ÷ 2,000 = ₹6.00 per hour

Step 2 — Machine (running) expenses per hour:

• Depreciation = (Cost − Scrap value) ÷ life = (90,000 − 10,000) ÷ 10 = ₹8,000 per year → 8,000 ÷ 2,000 = ₹4.00 per hour
• Power = 4,000 ÷ 2,000 = ₹2.00 per hour
• Repairs and maintenance = 2,000 ÷ 2,000 = ₹1.00 per hour …

Dual-solve check via the total-cost route: total annual overhead = standing charges ₹12,000 + depreciation ₹8,000 + power ₹4,000 + repairs ₹2,000 = ₹26,000. Dividing the whole ₹26,000 by 2,000 effective machine hour …

The most frequent error is forgetting to deduct scrap value before computing depreciation (using ₹90,000 ÷ 10 = ₹9,000 instead of the correct ₹8,000). Another is dividing the annual figures by 12 ( …