Machine Hour Rate Calculator (Job Costing)
What one productive hour of a machine costs, for costing jobs and quoting them.
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Breakdown
| Cost | Kind | A year | An hour | Share |
|---|---|---|---|---|
| Total | — | — | 100% | |
How the hours and the rate are worked out
On one, two and three shifts
| Shifts | Productive hours | Standing charges a year | Fixed an hour | Variable an hour | Rate |
|---|
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Results are estimates for general information and planning, not financial advice. Banks and institutions may calculate differently (rounding, fees, rate changes). Confirm figures with your lender or a qualified adviser before deciding.
How this tool is checked
- Based on
- the method set out under ‘The formula’.
- Sources
-
This guide cites one source:
- Tests
- 8 automated tests check its results.
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About the Machine Hour Rate Calculator (Job Costing)
Works out a machine hour rate: the cost of running a machine for one productive hour, to charge to every job by the hours it spends on that machine. Every cost of the machine for a year is added up and split into standing (fixed) charges — depreciation, insurance, the machine's share of floor space, supervision and other standing charges — and machine expenses (variable) — power, repairs and maintenance, consumables, and the operator's wages when the rate includes the operator — and divided by the machine's productive hours: its working hours less planned maintenance and setup time, times its utilisation.
You see the rate with its fixed and variable parts, a breakdown of every cost a year and an hour, the working of the hours, and the rate on one, two and three shifts: more shifts spread the fixed charges over more hours, so the rate falls while the variable part an hour stays the same. Depreciation can be straight-line, reducing balance (at a rate you give or the one that reaches the residual value) or by machine hours, as many cost accounting courses do it.
Without a pass the result is a free preview: the machine hour rate in full, and the first rows of the breakdown and of the shift table; every other figure, the CSV download and the copied summary unlock with a Premium pass.
How to use it
- Enter the machine’s cost with its installation, its residual value and its useful life, and choose how it is depreciated: straight-line, reducing balance, or by machine hours (then give its working life in running hours).
- Enter the running costs: the rated power in kW, the average load while it runs and the price of a kWh, then repairs and maintenance and consumables a year.
- Enter the standing charges: insurance (a % of the cost or an amount a year), floor space (the area × the rent a year for each unit of area, or an amount), supervision a year for each shift, and any other standing charges.
- Tick Include the operator to add the operator’s wages, and enter the hours: hours a shift, shifts a day, working days a year, planned maintenance downtime, setup time and utilisation.
- Read the rate, its breakdown, the working and the shift table. The CSV breakdown and the copied summary come with a Premium pass; without one the result is a free preview.
Examples
Cost 250,000, residual 25,000, 10 years straight-line; 15 kW at 70% load and 0.15 a kWh; repairs 6,000 and consumables 2,400 a year; insurance 1%; 40 m² at 60 a m²; supervision 4,800 a shift; other 1,200; 8 h × 250 days, 80 h maintenance, 5% setup, 85% utilisation
Productive hours (2,000 − 80 − 100) × 85% = 1,547. Fixed 33,400 a year = 21.59 an hour; variable 1.575 + 3.88 + 1.55 = 7.00 an hour. Machine hour rate 28.60.
Supervision 4,800 for each shift; the same costs an hour
19.09 an hour on two shifts (38,200 over 3,162 hours) and 16.01 on three (43,000 over 4,777 hours).
1 operator at 4.00 an hour, paid for all 2,000 working hours
8,000 a year ÷ 1,547 productive hours = 5.17 an hour more: 33.77 with the operator.
Common uses
- Pricing a job in a machine shop: the hours on each machine × its rate, plus materials and labour.
- Comparing one shift with two or three before buying a second machine or adding a shift.
- Cost accounting coursework and exams on the machine hour rate method.
- Setting the machine hour rates of a routing for a BOM cost roll-up.
The formula
- Working hours = hours a shift × shifts × working days a year.
- Productive hours = (working hours − planned maintenance − setup time) × utilisation.
- Standing charges a year = depreciation + insurance + floor space + supervision × shifts + other standing charges.
- Machine expenses an hour = kW × load × price of a kWh + (repairs + consumables) ÷ productive hours (+ the operator's wages for every working hour ÷ productive hours).
- Machine hour rate = standing charges a year ÷ productive hours + machine expenses an hour.
This is an overhead absorption rate as ICMAI's cost accounting standard CAS-3 on production and operation overheads defines one: the overheads of the activity divided by its volume of activity, with the overheads of a machine shop divided by machine hours as its example.
Which hours to divide by
CAS-3 absorbs fixed production overheads over the normal capacity and variable ones over the actual production (para 6.3), and its normal capacity allows for planned maintenance (para 4.11). So enter the hours the machine works in a normal year — its shifts, its planned maintenance, its usual setup time and how much of the rest it is busy — not the hours of an unusually busy or quiet one. In a slow year the rate stays the same, and the fixed charges the jobs do not absorb are under-absorbed overhead, which CAS-3 presents in the reconciliation statement, not in the cost of the jobs.
Depreciation
- Straight-line: (cost − residual value) ÷ useful life, the same every year: a standing charge.
- Reducing balance: the rate × the value at the start of the year, so later years cost less. Without a rate of your own, the rate that brings the cost down to the residual value over the life is used: 1 − (residual ÷ cost)^(1 ÷ life).
- By machine hours: (cost − residual value) ÷ the working life in running hours, for every hour the machine runs: a machine expense, because it follows the hours. Many cost accounting textbooks treat depreciation this way in machine hour rate problems; read the problem’s wording to see which it means.
Standing charges and machine expenses
Standing charges stay the same for the year however much the machine works: rent and rates of its floor space, insurance, its share of supervision and the factory office, lighting, and depreciation by time. Machine expenses follow the hours it runs: power, repairs and maintenance, consumable stores such as oil, coolant and small tools, depreciation by machine hours, and the operator when the rate includes one. A cost that is partly both (a power bill with a fixed charge) is split as well as you can.
Limitations
- An estimate from your own figures; it is not an audited cost or an accounting opinion. Use the costs of a normal year.
- Power is charged for every productive hour at the average load you enter; standby power and maximum-demand charges are not modelled.
- Interest on the money the machine ties up is not added: CAS-3 leaves imputed (notional) costs out of production overheads. Add a real financing cost as an other standing charge if your costing includes it.
- Repairs and consumables an hour are taken as the same on more shifts; a machine that wears faster on more shifts costs more than the shift table shows.
Privacy
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Frequently asked questions
What do I get without a pass?
Without a pass, Machine Hour Rate Calculator (Job Costing) shows the machine hour rate in full, with the first rows of the breakdown and of the shift table and the first step of the working; every other figure is hidden. Until you unlock it, the result can’t be downloaded or copied. A Premium or Ultimate pass, a one-time payment that never renews, unlocks the full result. The pricing page lists the passes and their prices.
What does the free preview show?
The machine hour rate in full, with the first rows of the cost breakdown and of the shift table and the first step of the working; the other figures (the fixed and variable parts, the productive hours, the yearly costs) show after unlock. The CSV breakdown and the copied summary unlock with a Premium pass.
Should the operator’s wages be in the machine hour rate?
It depends on how you cost labour. If direct labour is charged to jobs separately (hours × wage rate), leave the operator out, or the wages are counted twice. If one person minds the machine all the time and you quote by machine hours only, include them. The calculator shows the rate both ways when you tick the operator.
Why does the rate fall with more shifts?
The standing charges — depreciation by time, insurance, floor space — do not grow with the hours, so on two shifts each hour carries about half of them. Supervision grows with each shift, and the machine expenses an hour stay the same, so the rate falls, but not by half.
What is a typical utilisation?
Utilisation is the share of the hours left after maintenance and setup that the machine is really busy: it waits for work, material, an operator or an inspection the rest of the time. Use what your machine does in a normal year; a job shop machine often runs well below a dedicated production line.