Machine Hour Rate Calculator

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.