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Machine Hour Rate Calculator

Enter overhead, running costs and machine hours to find the rate per machine hour.

How it is calculated

The tool adds up the machine-related costs for one period and spreads them over the hours the machine is actually productive: rate = (overhead + power + maintenance) ÷ machine hours. All three costs must be for the same period as the hours (all annual, or all monthly). Power and maintenance are optional and count as 0 if left empty. Machine hours must be above zero, otherwise the tool returns nothing. It also shows the total cost pool and the rate per minute, rate ÷ 60. Amounts are in dollars with two decimals, so read them in your own currency. The tool does not add depreciation or operator wages on its own; include them in overhead if they belong in the machine's cost.

Worked example

A machine has 18,000 of fixed overhead for the year (depreciation, rent share, insurance), 4,500 of electricity and 3,600 of maintenance, and it runs 1,800 productive hours. Total cost = 18,000 + 4,500 + 3,600 = $26,100.00. Rate = 26,100 ÷ 1,800 = $14.50 / hr. Per minute = 14.50 ÷ 60 = $0.24. A job that occupies the machine for 3.5 hours would carry 3.5 × 14.50 = 50.75 of machine cost. Without power and maintenance the rate would be only $10.00.

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Common mistakes

  • Dividing by the hours the machine is available (such as 8 hours × working days) rather than the hours it truly runs. Setup, breakdowns and idle time lower productive hours, so the real rate is higher than the tool shows with available hours.
  • Mixing periods, such as annual overhead with monthly hours. The rate then comes out 12 times too high or too low.
  • Counting a cost twice. If your overhead figure already includes electricity or repair, entering them again in the power and maintenance fields inflates the rate.
  • Leaving out depreciation of the machine itself, a real cost of owning it, and so understating the rate used to price jobs.
  • Using the rate for a different machine. The figure belongs only to the machine whose costs and hours you entered; a larger or older machine needs its own calculation.

Sources

About this calculator

The machine hour rate is a cost-accounting figure used to absorb overhead into product costs on a per-machine-hour basis: it's calculated as (fixed overhead + power/electricity cost + maintenance and repair cost) ÷ total productive machine hours, giving a single rate that can be multiplied by the hours a job spends on a given machine to charge it its fair share of indirect costs.

Cost and management accountants in manufacturing use this rate under absorption costing to price jobs accurately in a machine-intensive shop, where labor hours alone would understate the true cost of running expensive equipment. It's especially common in job-order costing environments — machine shops, printing plants, and injection-molding facilities — where different jobs occupy machines for very different lengths of time.

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Comments (1)

  • Editorial team

    Hours here should be the productive hours you expect to run, not every hour the machine is available. With the default 16,000 total over 2,000 hours the rate is 8.00 per hour, but at 1,600 productive hours the same cost pool becomes 10.00 per hour. Pricing a job on the optimistic number is how a machine ends up under-recovering its costs. Which machine hours do you count: scheduled, run, or billable?

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