Machine Hour Rate Calculation Excel Sheet

by

Machine Hour Rate Calculator

Calculation Breakdown

Hourly Depreciation: $0.00

Hourly Standing Charges: $0.00

Hourly Variable Costs: $0.00

Total Machine Hour Rate: $0.00

function calculateMHR() { var cost = parseFloat(document.getElementById('machineCost').value) || 0; var scrap = parseFloat(document.getElementById('scrapValue').value) || 0; var life = parseFloat(document.getElementById('machineLife').value) || 0; var hours = parseFloat(document.getElementById('annualHours').value) || 0; var standing = parseFloat(document.getElementById('standingCharges').value) || 0; var power = parseFloat(document.getElementById('powerCost').value) || 0; var repair = parseFloat(document.getElementById('maintenanceCost').value) || 0; if (hours <= 0 || life <= 0) { alert("Please enter valid working hours and machine life."); return; } // Calculation Logic var totalDepreciation = (cost – scrap) / life; var hourlyDepreciation = totalDepreciation / hours; var hourlyStanding = standing / hours; var hourlyVariable = power + repair; var totalMHR = hourlyDepreciation + hourlyStanding + hourlyVariable; // Display Results document.getElementById('res-depreciation').innerHTML = "$" + hourlyDepreciation.toFixed(2); document.getElementById('res-standing').innerHTML = "$" + hourlyStanding.toFixed(2); document.getElementById('res-variable').innerHTML = "$" + hourlyVariable.toFixed(2); document.getElementById('res-total').innerHTML = "$" + totalMHR.toFixed(2); document.getElementById('mhr-results').style.display = 'block'; }

Understanding the Machine Hour Rate Calculation

A Machine Hour Rate (MHR) is a critical accounting metric used in manufacturing to determine the cost of operating a specific machine for one hour. This calculation is essential for accurate product costing, pricing strategies, and overhead absorption.

Key Components of MHR

To create an effective machine hour rate calculation excel sheet, you must categorize costs into two main types:

  • Standing Charges (Fixed Costs): These costs remain constant regardless of whether the machine is running. Examples include factory rent, insurance, departmental supervision, and lighting.
  • Machine Expenses (Variable Costs): these costs vary directly with the operation of the machine. This includes power consumption, depreciation (usually treated as variable based on usage), and repair/maintenance.

The Calculation Formula

MHR = (Annual Standing Charges / Annual Working Hours) + (Hourly Depreciation + Hourly Power + Hourly Repairs)

Why Use a Machine Hour Rate Calculator?

In modern manufacturing, overheads often exceed direct labor costs. Using a generic factory-wide overhead rate can lead to "cost distortion," where simple products appear expensive and complex products appear cheap. By calculating a specific rate for each machine, managers can:

  1. Identify the most expensive machines in the production line.
  2. Set competitive prices based on actual utilization costs.
  3. Make "Make vs. Buy" decisions with greater financial clarity.
  4. Optimize production schedules to maximize the use of high-efficiency equipment.

Example Calculation

Imagine a CNC machine costing $100,000 with a scrap value of $10,000 after 10 years. If the machine works 2,000 hours per year, the annual depreciation is $9,000 ($90,000 / 10). The hourly depreciation is $4.50. If you add $5.00 for power and $2.00 for fixed overheads, your total Machine Hour Rate would be $11.50 per hour.

Leave a Comment