Machine Hour Rate (MHR): Formula, Calculation and Worked Examples for CNC and Press Machines

Machine hour rate (MHR) is the cost of running one machine for one productive hour. The formula is MHR = total annual machine cost / annual productive hours. Total annual machine cost covers depreciation, interest, power, maintenance, floor space, consumables and insurance, plus the operator where the operator is not charged separately.

MHR sits at the centre of piece-price costing, because the conversion cost of a part is its cycle time multiplied by the machine hour rate. This guide explains the formula, shows which costs to include and exclude, works through two examples in rupees (a CNC machining centre and a 100 tonne mechanical press), and explains when a spreadsheet is enough and when it is not. Figures in the examples are illustrative. Use your own machine and plant data.

What is machine hour rate (MHR) in costing?

Machine hour rate is the total cost of owning and running a machine, expressed as a rate per productive hour. It converts a machine's yearly cost into a number that can be multiplied by the time any part spends on that machine.

Costing teams use MHR to price machining and pressing operations, to compare in-house and outsourced work, and to decide whether a new machine is worth buying. It suits machine-intensive operations better than a labour hour rate, because the cost of the machine, not of the person, drives the price. For how MHR fits into a full part cost, read the manufacturing cost breakdown guide and behind the scenes of manufacturing cost calculations.

What is the machine hour rate formula?

The formula is:

MHR = (depreciation + interest + power + maintenance + floor space + consumables + insurance + operator cost, if included) / productive hours per year

Each input has its own working:

• Depreciation (straight line) = (machine cost - salvage value) / life in years.

• Interest = interest rate x average investment, where average investment = (machine cost + salvage value) / 2.

• Power = rated kW x load factor x productive hours x tariff per kWh.

• Maintenance = a percentage of machine cost per year, or the actual annual spend.

• Floor space = area occupied x rate per square metre per year.

• Consumables = coolant, lubricants and similar items consumed by the machine each year.

• Insurance = a percentage of machine cost per year.

• Productive hours = available hours x utilisation.

Which costs are included in machine hour rate, and which are excluded?

Include every cost that exists because the machine exists, and exclude costs that are charged to the part directly or added later as overhead. The main rule is that no cost is counted twice.

How do you calculate productive hours for MHR?

Productive hours are the available hours less the time the machine is not cutting, forming or producing, found by multiplying available hours by utilisation. Use productive hours, not available hours, because a machine that is idle still costs money and the idle cost must be spread over the hours it works.

For a two-shift plant working 300 days a year, available hours are 2 shifts x 8 hours x 300 days = 4,800. At 75 percent utilisation, productive hours are 4,800 x 0.75 = 3,600. Utilisation should come from actual machine records where they exist, not from a target.

Worked example 1: machine hour rate for a CNC machining centre

The example below uses a CNC machining centre working two shifts. The figures are illustrative.

MHR including operators = 17,11,600 / 3,600 = Rs 475.44 per hour. MHR excluding operators = 12,31,600 / 3,600 = Rs 342.11 per hour. If operators are in the MHR, do not charge labour again in the part cost.

Using the rate: a part with a 6 minute cycle time carries a machining cost of 6 / 60 x 475.44 = Rs 47.54.

How much does utilisation change the rate?

A fall in utilisation raises the rate directly, because the same yearly cost is spread over fewer hours. If utilisation drops from 75 to 60 percent, productive hours fall to 2,880 and the rate becomes 17,11,600 / 2,880 = Rs 594.31, which is 25 percent higher. This treats all costs as fixed. In practice some power and consumable cost falls with hours, so the real rise is somewhat smaller. It is still the clearest reason to keep utilisation data current.

Worked example 2: machine hour rate for a 100 tonne mechanical press

The second example uses a mechanical press, common in sheet metal work. The figures are illustrative.

MHR including operators = 12,90,160 / 3,840 = Rs 335.98 per hour. MHR excluding operators = 8,90,160 / 3,840 = Rs 231.81 per hour.

Using the rate: at 30 strokes per minute, 1,000 strokes take 1,000 / 30 / 60 = 0.556 hour, so the press cost for 1,000 pieces is about 0.556 x 335.98 = Rs 186.66, or about Rs 0.19 per piece. Press cost per piece is small, which is why tooling, material and scrap usually decide the price of a pressed part.

Can you calculate machine hour rate in Excel?

Yes. A spreadsheet is enough when you have a handful of machines in one plant and one person maintaining the rates. The calculation above is a list of additions and one division, and it fits in a sheet.

The problems begin when the rate has to serve many machines, plants and parts at once:

• Copies drift. Each estimator keeps a copy, and two people cost the same part on different rates.

• Updates do not travel. A new power tariff or wage revision changes the rate, but nothing updates the part costings that used the old one.

• No history. When the rate changes, there is no record of what it was, who changed it or why.

• No impact view. Nobody can see which parts and quotes are affected by a change before it is approved.

These are the same reasons spreadsheet costing breaks down in general. See why Excel fails in cost and price calculation.

Cost It Right holds machine hour rates in a machine master with the MHR calculation built in, alongside masters for operations, labour, overheads and power. Rate changes are tracked and carried into cost sheets, and the effect of a change can be simulated on affected costings before it is approved. To see machine hour rates working inside a full part costing, request a Cost It Right demo.

How often should machine hour rate be reviewed?

Review machine hour rates at least once a year, and sooner when something material changes: a new machine, a power tariff revision, a wage settlement, a major repair or a clear shift in utilisation. Record the effective date with each rate so that costings can show which rate they used.

What mistakes distort machine hour rate?

• Dividing by available hours instead of productive hours. This understates the rate, because idle cost is left out.

• Counting the operator twice. Once in MHR and again as labour in the part cost.

• Using rated power instead of a load factor. This overstates power cost.

• Ignoring interest on investment. Capital has a cost even when it is internal.

• One rate for machines of different age or condition. An old machine with high maintenance costs more per hour than its book value suggests.

• Using a target utilisation as fact. Take it from machine records.

• Applying plant overhead inside MHR and again as a percentage. This double counts.

For related ground, read how to estimate a new product cost, industrial engineering cost estimation methods and hidden cost drivers in sheet metal components.