ECONOMICS

Detailed explanation-1: -At the simplest level, a machine’s cost per hour is equal to its total cost minus its eventual salvage value divided by its total expected life.

Detailed explanation-2: -Owning costs = purchase price of machine + financing + taxes – disposal price (what you get for that machine when you resell it). Operating costs = labor + fuel + maintenance + replacement costs of tires, tracks and other components + overhead.

Detailed explanation-3: -A machine hour rate for a specific machine cost centre is computed by dividing the total overhead estimated or incurred for that machine divided by actual or estimated machine hours.

Detailed explanation-4: -Machine hour rate is obtained by dividing the total running expenses of a machine during a particular period by the number of hours the machine is estimated to work during that period.