Machine Hour Rate (MHR) Calculator
Standing Charges (per hour):
Depreciation (per hour):
Repairs & Maintenance (per hour):
Power Cost (per hour):
Total Machine Hour Rate:
Understanding Machine Hour Rate Calculation
In cost accounting, the Machine Hour Rate (MHR) is a method used to allocate factory overheads to products based on the amount of time a machine is utilized. This is particularly crucial in highly automated manufacturing environments where machine costs outweigh manual labor costs.
This calculator helps production managers and accountants determine the cost of running a single machine for one hour, which is essential for accurate product pricing and budgeting presentations (PPTs).
Components of Machine Hour Rate
The calculation is generally split into two main categories:
- Standing Charges (Fixed): These costs remain constant regardless of whether the machine is running. Examples include factory rent, rates, insurance, and supervisor salaries allocated to the machine.
- Running Charges (Variable): These costs fluctuate based on machine usage. They include power consumption, depreciation (when calculated on usage), and repairs and maintenance.
Step-by-Step Calculation Formula
| Element | Formula |
|---|---|
| Depreciation | (Cost of Machine – Scrap Value) / (Useful Life × Annual Hours) |
| Standing Charges Rate | Total Annual Fixed Charges / Annual Effective Hours |
| Power Cost | Units Consumed per Hour × Rate per Unit |
| Repair Rate | Annual Repair Budget / Annual Effective Hours |
Example Scenario
Imagine a machine that costs $100,000 with a scrap value of $10,000 after 10 years. It runs for 2,000 hours annually. Standing charges allocated to it are $4,000 per year. It consumes 10 units of power per hour at $0.20 per unit, and annual maintenance is $2,000.
- Depreciation: ($100,000 – $10,000) / (10 years × 2,000 hours) = $4.50/hr
- Standing Charges: $4,000 / 2,000 = $2.00/hr
- Power: 10 units × $0.20 = $2.00/hr
- Repairs: $2,000 / 2,000 = $1.00/hr
- Total MHR: $4.50 + $2.00 + $2.00 + $1.00 = $9.50 per hour
Why This Matters for your PPT
When creating a "Machine Hour Rate Calculation PPT," focus on visualizing the breakdown between fixed and variable costs. Highlighting the Break-Even Point and how increasing machine efficiency (effective hours) reduces the standing charge per hour is key to demonstrating operational improvement in manufacturing finance presentations.