How to Calculate the Machine Hour Rate

Machine Hour Rate (MHR) Calculator

Determine the hourly cost of operating a specific piece of machinery.

1. Operational Time Data (Annual)

2. Fixed Costs (Standing Charges – Annual)

(Rent, Insurance, Depreciation, allocated supervision salary)

3. Variable Costs (Running Charges)

Calculation Results

Net Productive Hours / Year:

Fixed Cost per Hour:

Variable Cost per Hour:

Total Machine Hour Rate (MHR):

function calculateMHR() { // Get inputs var totalAvailableHours = parseFloat(document.getElementById("mhr_total_available_hours").value); var downtimeHours = parseFloat(document.getElementById("mhr_downtime_hours").value); var annualFixedCosts = parseFloat(document.getElementById("mhr_annual_fixed_costs").value); var powerUnitsPerHour = parseFloat(document.getElementById("mhr_power_units").value); var costPerUnit = parseFloat(document.getElementById("mhr_cost_per_unit").value); var annualMaintenance = parseFloat(document.getElementById("mhr_annual_maintenance").value); // Validate inputs and initialize zeroes if empty/NaN if (isNaN(totalAvailableHours)) totalAvailableHours = 0; if (isNaN(downtimeHours)) downtimeHours = 0; if (isNaN(annualFixedCosts)) annualFixedCosts = 0; if (isNaN(powerUnitsPerHour)) powerUnitsPerHour = 0; if (isNaN(costPerUnit)) costPerUnit = 0; if (isNaN(annualMaintenance)) annualMaintenance = 0; // Calculate Productive Hours var productiveHours = totalAvailableHours – downtimeHours; // Error handling for zero or negative productive hours to avoid division by zero if (productiveHours <= 0) { document.getElementById("mhr_result").style.display = "block"; document.getElementById("result_productive_hours").innerHTML = "Invalid Hours"; document.getElementById("result_fixed_hourly").innerHTML = "—"; document.getElementById("result_variable_hourly").innerHTML = "—"; document.getElementById("result_total_mhr").innerHTML = "Cannot calculate with zero productive hours."; document.getElementById("result_total_mhr").style.color = "#dc3545"; return; } else { document.getElementById("result_total_mhr").style.color = "#28a745"; } // Calculate Fixed Hourly Cost var fixedHourlyCost = annualFixedCosts / productiveHours; // Calculate Variable Hourly Costs var hourlyPowerCost = powerUnitsPerHour * costPerUnit; var hourlyMaintenanceCost = annualMaintenance / productiveHours; var totalVariableHourlyCost = hourlyPowerCost + hourlyMaintenanceCost; // Calculate Total MHR var totalMHR = fixedHourlyCost + totalVariableHourlyCost; // Display Results document.getElementById("mhr_result").style.display = "block"; document.getElementById("result_productive_hours").innerHTML = productiveHours.toFixed(0) + " hrs"; document.getElementById("result_fixed_hourly").innerHTML = "$" + fixedHourlyCost.toFixed(2); document.getElementById("result_variable_hourly").innerHTML = "$" + totalVariableHourlyCost.toFixed(2); document.getElementById("result_total_mhr").innerHTML = "$" + totalMHR.toFixed(2) + " per hour"; }

In manufacturing and cost accounting, calculating the Machine Hour Rate (MHR) is essential for accurate product pricing and overhead allocation. The MHR represents the total cost incurred to run a specific machine for one hour. It combines both the costs that remain constant regardless of usage and the costs that fluctuate based on how much the machine runs.

Knowing your MHR allows you to:

• Accurately estimate the cost of production jobs.
• Make informed decisions about purchasing new equipment versus repairing old ones.
• Identify expensive machinery that may be hurting profitability.

The Core Components of MHR

To calculate the rate accurately, costs must be divided into two main categories:

1. Fixed Costs (Standing Charges)

These are costs that accrue over time regardless of whether the machine is operating. They are usually calculated annually and then divided by the total productive hours. Examples include:

• Depreciation: The gradual expensing of the machine's purchase cost over its useful life.
• Rent and Space: The portion of factory rent or property taxes allocated to the footprint of the machine.
• Insurance: Premiums paid specifically for covering the machinery.
• Supervision: A portion of the shop floor supervisor's salary allocated to that machine center.

2. Variable Costs (Running Charges)

These costs are directly tied to the operation of the machine. If the machine isn't running, these costs should theoretically be near zero. Examples include:

• Power/Electricity: The cost of energy consumed per hour of operation.
• Repairs and Maintenance: Costs for spare parts, lubricants, and service labor.
• Consumables: Items used up during the process, such as coolants or cutting tools.

The Machine Hour Rate Formula

The fundamental formula to calculate the Machine Hour Rate is:

MHR = (Total Fixed Costs per Hour) + (Total Variable Costs per Hour)

To get these hourly figures, you need to determine the Net Productive Machine Hours. This is the total time the machine is available to work, minus planned downtime for setup, maintenance, or shift changes.

Net Productive Hours = Total Available Hours – Downtime Hours

Calculation Example

Let's calculate the MHR for a CNC milling machine using realistic annual data.

Step 1: Determine Operational Time
Total available hours per year: 2,500 hours.
Estimated annual downtime (maintenance/setup): 500 hours.
Net Productive Hours = 2,500 – 500 = 2,000 hours.

Step 2: Calculate Hourly Fixed Costs
Total Annual Fixed Costs (Depreciation \$12,000 + Rent/Insurance \$8,000) = \$20,000.
Fixed Cost per Hour = \$20,000 / 2,000 hours = \$10.00 per hour.

Step 3: Calculate Hourly Variable Costs
Power usage: The machine uses 20 kWh per hour, and electricity costs \$0.15 per kWh.
Power Cost = 20 * \$0.15 = \$3.00 per hour.
Annual Repairs & Maintenance is \$5,000.
Maintenance Cost = \$5,000 / 2,000 hours = \$2.50 per hour.
Total Variable Cost per Hour = \$3.00 + \$2.50 = \$5.50 per hour.

Step 4: Final MHR Calculation
MHR = Fixed Hourly Cost (\$10.00) + Variable Hourly Cost (\$5.50)
Total Machine Hour Rate = \$15.50 per hour.

You can use the calculator above to perform these calculations quickly for different machines in your facility by inputting your specific cost and operational data.