Machine Hour Rate Calculation Formula

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Machine Hour Rate (MHR) Calculator

Calculation Results

Total Machine Hour Rate:

Hourly Depreciation:

Hourly Standing Charges:

Hourly Power Cost:

Hourly Labor Cost:

function calculateMHR() { var price = parseFloat(document.getElementById('mhr_price').value) || 0; var scrap = parseFloat(document.getElementById('mhr_scrap').value) || 0; var life = parseFloat(document.getElementById('mhr_life').value) || 1; var hours = parseFloat(document.getElementById('mhr_hours').value) || 1; var maint = parseFloat(document.getElementById('mhr_maint').value) || 0; var ins = parseFloat(document.getElementById('mhr_ins').value) || 0; var powerU = parseFloat(document.getElementById('mhr_power_units').value) || 0; var powerR = parseFloat(document.getElementById('mhr_power_rate').value) || 0; var labor = parseFloat(document.getElementById('mhr_labor').value) || 0; // Hourly Depreciation = (Cost – Scrap) / (Life * Annual Hours) var hourlyDep = (price – scrap) / (life * hours); // Hourly Standing Charges (Fixed costs like insurance, rent, maintenance) var hourlyFixed = (maint + ins) / hours; // Hourly Power Cost var hourlyPower = powerU * powerR; // Total MHR var totalMHR = hourlyDep + hourlyFixed + hourlyPower + labor; document.getElementById('res_total').innerText = '$' + totalMHR.toFixed(2) + ' per hour'; document.getElementById('res_dep').innerText = '$' + hourlyDep.toFixed(2); document.getElementById('res_fixed').innerText = '$' + hourlyFixed.toFixed(2); document.getElementById('res_power').innerText = '$' + hourlyPower.toFixed(2); document.getElementById('res_labor').innerText = '$' + labor.toFixed(2); document.getElementById('mhr_result').style.display = 'block'; }

Understanding the Machine Hour Rate Calculation Formula

The Machine Hour Rate (MHR) is a critical accounting metric used to determine the cost of running a specific machine for one hour of production. This figure is vital for manufacturers to set accurate pricing, estimate job costs, and manage overhead absorption.

The Basic Formula

The comprehensive formula for calculating MHR is:

MHR = (Total Annual Fixed Costs / Annual Working Hours) + (Total Annual Variable Costs / Annual Working Hours) + Hourly Labor Costs

Key Components of MHR

  • Fixed Costs (Standing Charges): These are expenses that occur regardless of whether the machine is running. Examples include insurance, factory rent allocated to the machine's floor space, and supervisor salaries.
  • Depreciation: The wear and tear of the machine over time. Using the straight-line method, it is (Purchase Price – Scrap Value) / Estimated Service Life.
  • Variable Costs (Running Charges): Expenses incurred only when the machine is operational. This includes electricity (power), fuel, lubricants, and repairs/maintenance.
  • Direct Labor: The hourly wage of the operator assigned to the machine.

Practical Example of MHR Calculation

Imagine a CNC machine with the following profile:

  • Initial Investment: $100,000
  • Estimated Life: 10 years (with $10,000 scrap value)
  • Annual Operating Hours: 2,000 hours
  • Annual Maintenance: $2,000
  • Power Consumption: 10 units/hour at $0.20/unit

Step 1 (Depreciation): ($100,000 – $10,000) / (10 years * 2,000 hours) = $4.50/hour.

Step 2 (Maintenance): $2,000 / 2,000 hours = $1.00/hour.

Step 3 (Power): 10 units * $0.20 = $2.00/hour.

Result: If the operator earns $20/hour, the Total Machine Hour Rate would be $4.50 + $1.00 + $2.00 + $20.00 = $27.50 per hour.

Why is MHR Important?

Accurate MHR calculation prevents under-recovery of overheads. If your calculated MHR is too low, you may be losing money on every hour of production without realizing it. Conversely, if it is too high, your product pricing may become uncompetitive in the market. Regularly updating your MHR ensures that your financial planning reflects current energy prices and labor rates.

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