The Machine Hour Rate (MHR) is a critical accounting metric used in manufacturing and production environments. It represents the total cost incurred to operate a specific machine for one hour. This calculation is essential for accurately pricing products, estimating project costs, and determining the profitability of automated processes.
Calculating the MHR involves aggregating all costs associated with the machine—both the initial investment spread over time and the ongoing operational expenses—and dividing them by the effective working hours of the machine.
Components of the Calculation
To determine an accurate hourly rate, costs are typically categorized into two main groups:
1. Fixed (Standing) Charges
These are costs that remain constant regardless of how many hours the machine runs in a specific short period. They are time-based rather than usage-based.
Depreciation: The loss of value of the machine over its useful life. This is calculated as (Cost + Installation – Scrap Value) / Total Life Hours.
Operator Wages: The salary paid to the personnel supervising the machine.
Rent & Insurance: The portion of factory rent and insurance premiums allocated to the space the machine occupies.
2. Variable (Running) Charges
These costs are directly proportional to the usage of the machine.
Power/Fuel: Electricity or fuel consumed per hour of operation.
Repairs & Maintenance: Costs for spare parts and servicing, usually estimated on an annual basis.
Consumables: Lubricants, coolants, and other materials consumed during operation.
How to Calculate Machine Hour Rate
The general formula for calculating the Machine Hour Rate is:
Total MHR = (Total Fixed Costs / Total Working Hours) + Total Variable Costs per Hour
For example, if a machine costs $100,000, has a 10-year life, and costs $5,000 a year to maintain, while consuming $2 of electricity per hour, all these factors must be normalized to an hourly figure to find the true cost of production.
Why is this Calculation Important?
Accurate Quoting: Ensures you don't undercharge clients for manufacturing jobs.
Cost Control: Helps identify if maintenance or power costs are becoming excessive.
Investment Decisions: Assists in deciding whether to buy a new machine or outsource production based on the hourly operational cost.
function calculateMachineHourRate() {
// 1. Get Input Values
var machineCost = parseFloat(document.getElementById('machineCost').value) || 0;
var installationCost = parseFloat(document.getElementById('installationCost').value) || 0;
var scrapValue = parseFloat(document.getElementById('scrapValue').value) || 0;
var usefulLife = parseFloat(document.getElementById('usefulLife').value) || 0;
var annualHours = parseFloat(document.getElementById('annualHours').value) || 0;
var operatorWage = parseFloat(document.getElementById('operatorWage').value) || 0;
var rentInsurance = parseFloat(document.getElementById('rentInsurance').value) || 0;
var powerUnits = parseFloat(document.getElementById('powerUnits').value) || 0;
var powerRate = parseFloat(document.getElementById('powerRate').value) || 0;
var annualMaintenance = parseFloat(document.getElementById('annualMaintenance').value) || 0;
var consumables = parseFloat(document.getElementById('consumables').value) || 0;
// Validation
if (usefulLife <= 0 || annualHours <= 0) {
alert("Please enter a valid Useful Life (years) and Total Working Hours.");
return;
}
// 2. Calculate Depreciation (Fixed Cost spread over life)
var totalCapitalCost = machineCost + installationCost;
var depreciableAmount = totalCapitalCost – scrapValue;
var annualDepreciation = depreciableAmount / usefulLife;
var hourlyDepreciation = annualDepreciation / annualHours;
// 3. Calculate Other Fixed/Standing Charges (Hourly)
// Operator wage is monthly, so * 12 for annual
var annualOperatorCost = operatorWage * 12;
var hourlyOperatorCost = annualOperatorCost / annualHours;
var hourlyRentInsurance = rentInsurance / annualHours;
var totalFixedHourly = hourlyDepreciation + hourlyOperatorCost + hourlyRentInsurance;
// 4. Calculate Variable/Running Charges (Hourly)
var hourlyPowerCost = powerUnits * powerRate;
var hourlyMaintenance = annualMaintenance / annualHours;
// Consumables are monthly, so * 12 / annualHours
var annualConsumables = consumables * 12;
var hourlyConsumables = annualConsumables / annualHours;
var totalVariableHourly = hourlyPowerCost + hourlyMaintenance + hourlyConsumables;
// 5. Total Rate
var totalMachineHourRate = totalFixedHourly + totalVariableHourly;
// 6. Display Results
var resultDiv = document.getElementById('result');
resultDiv.style.display = "block";
resultDiv.innerHTML = `
Total Hourly Rate: $${totalMachineHourRate.toFixed(2)}