Calculate machine hour rate by summing depreciation, power, maintenance, and space costs then dividing by available machine hours.
The machine hour rate is the total cost of operating a machine for one hour, including depreciation, power consumption, maintenance, and the floor space it occupies. Manufacturers use this rate to allocate machine-related overhead to jobs based on how many hours each job spends on a particular machine.
In capital-intensive manufacturing — CNC machining, injection molding, stamping, printing — machine costs often exceed labor costs. Knowing the hourly cost of each machine enables accurate job quoting, make-vs-buy analysis, and capital investment decisions. A machine with a $150/hour rate that sits idle for half the shift represents $600 per shift in unrecovered cost.
This calculator sums four key cost components — depreciation, power, maintenance, and space — and divides by annual available machine hours to produce the machine hour rate. Understanding this rate helps you price machine time accurately and identify the true cost of equipment underutilization.
This measurement forms a critical foundation for capacity planning, helping teams align production capabilities with demand forecasts and strategic business objectives throughout the planning cycle.
Machine hour rates translate capital investments into per-hour costs that can be assigned to jobs. They reveal the true cost of idle capacity, help compare the economics of different machines, and ensure quoting covers all equipment-related expenses. Having accurate figures readily available streamlines reporting, audit preparation, and strategic planning discussions with management and key stakeholders across the business.
MH Rate = (Depreciation + Power + Maintenance + Space) / Available Machine Hours Each component rate = Component Cost / Available Machine Hours
Result: $13.75 per machine hour
Total machine costs = $30,000 + $12,000 + $8,000 + $5,000 = $55,000. Available hours = 4,000. Rate = $55,000 / 4,000 = $13.75/hr.
Straight-line depreciation spreads the machine's cost evenly over its useful life. For a $200,000 machine with a 10-year life and $20,000 salvage value, annual depreciation is ($200,000 − $20,000) / 10 = $18,000. Some companies use replacement cost depreciation, which bases the annual charge on what it would cost to replace the machine today, providing a more realistic cost figure.
Power cost depends on the machine's motor size, load factor, duty cycle, and electricity rate. A 50 kW motor running at 75% load for 4,000 hours at $0.10/kWh costs 50 × 0.75 × 4,000 × $0.10 = $15,000/year. Sub-metering individual machines provides the most accurate data.
When evaluating a new machine purchase, calculate its projected machine hour rate and compare it to the existing machine. If the new machine has a higher rate but is faster, the cost per part may still decrease. Always compare cost per part, not just cost per hour.
The four standard components are depreciation (or lease cost), power/electricity, maintenance (preventive and corrective), and space (floor area cost). Some companies also include tooling, coolant, compressed air, and insurance.
Start with total shift hours per year. Subtract planned maintenance downtime, holidays, and any scheduled non-production time. For example: 2 shifts × 8 hours × 250 days = 4,000 hours. Subtract 200 hours for maintenance = 3,800 available hours.
For machine hour rate purposes, straight-line depreciation is most common because it produces a stable rate. Using accelerated depreciation causes the rate to be higher in early years and lower later, which can distort product costing.
The rate is calculated based on available hours, not actual utilization. If a machine runs 3,000 hours but its rate is based on 4,000 available hours, 1,000 hours of cost are unrecovered. Some companies calculate a separate "idle time" cost to make this visible.
Machine hour rates handle machine-related overhead very well but don't cover all overhead (e.g., front office, plant management). Many companies use machine hour rates for production and a separate burden rate for remaining overhead.
Recalculate annually during budgeting. Update mid-year if significant changes occur — major repairs, energy price spikes, or changes in available hours due to shift additions or reductions.