Machine Hour Rate Calculator

This machine hour rate calculator works out, in five steps, what one hour of a machine or line costs whether it runs or not. Scheduled Hours counts the hours the machine is planned to work in a year, Machine spreads its depreciation, interest and insurance over the year, Floor Space adds the cost of its floor space, Operators and Overheads adds the cost of the operators who run it, with a percentage for supervision and overheads, and Cost of One Hour divides the year’s costs by the scheduled hours. Energy, repairs and tooling, which grow with the hours the machine runs, are left out. The result is the hourly cost the OEE calculator uses to price lost time.

The results can be downloaded as a PNG or copied as text at the end of the page.

Calculator by Jacek Garbuliński, Blixild. Updated 19 October 2026.

Worked Example

The calculator opens with a worked example using illustrative values, not data from a plant: a machining centre bought for $150,000 installed, worth 20% of that at the end of an economic life of 10 years, with interest at 7% and insurance at 0.5% a year on its average annual investment. It takes up 180 sq ft at $10 per sq ft a year. Two operators run it, each paid $50,000 a year, plus 30% employer costs, and 50% of that total is added for supervision and overheads.

It is scheduled for 10 shifts a week of 480 min, each with 30 min of planned stops, 48 weeks a year: 3,600 scheduled hours. The year’s costs come to $216,000: depreciation $12,000, interest $6,720, insurance $480, floor space $1,800, operators $130,000, and supervision and overheads $65,000. One hour therefore costs $60.00 whether the machine runs or not, as in the OEE calculator’s worked example.

Scheduled Hours

This step counts the hours a year in which the machine is planned to produce.

The year’s costs are spread over the scheduled hours: the time in which the machine is planned to do productive work, whether it then runs or stands. Planned stops, such as breaks and planned maintenance, are taken out first, as in the OEE calculator, so an hour here is an hour of planned production time. Hours lost to unplanned stops and changeovers stay in: an hour in which the machine stands costs the same as an hour in which it runs, and the OEE calculator counts these hours as losses. A machine scheduled for fewer hours carries the same yearly costs over fewer hours, so each hour costs more.

Planned production time

T_{pp}

450 min(7h30min)

Scheduled hours a year

H

3,600 h

H = \frac{T_s - T_{pl}}{60}\, n_s\, n_w

where $H$ is the number of scheduled hours a year; $T_s$ is the shift length and $T_{pl}$ the planned stops, in minutes; 60 is the number of minutes in an hour; $n_s$ is the number of shifts per week and $n_w$ the number of weeks per year.

Planned production time 480 − 30 = 450 min = 7.5 h a shift; scheduled hours 7.5 h × 10 × 48 = 3,600 h a year.

How many of the scheduled hours a machine actually runs can be measured from camera images: machine monitoring.

Equations

T_{pp} = T_s - T_{pl}

H = \frac{T_{pp}}{60}\, n_s\, n_w

$T_{pp}$ is the planned production time of one shift: the shift length $T_s$ less the planned stops $T_{pl}$ , in minutes. $H$ is the number of scheduled hours in a year: $T_{pp}$ divided by 60, times $n_s$ shifts a week and $n_w$ weeks a year.

Miyata (1980, p. 3) defines the scheduled operating time as the time in which a machine is scheduled to do productive work, and the productive time as the part of it in which the machine actually works; productive time as a share of scheduled time is its utilisation. This calculator reads the scheduled operating time as the OEE calculator’s planned production time.

Assumptions

The year repeats the shift entered: all the shifts are assumed to be alike.
Planned stops are taken out of the scheduled hours, as the OEE calculator takes them out of the planned production time. Their cost is spread over the hours that remain. That is this calculator’s convention.
Unplanned stops and changeovers stay in the scheduled hours. Fixed costs do not vary with the hours of operation (Miyata, 1980, p. 4), and labour is paid for the scheduled operating time (p. 11), so an hour in which the machine stands costs the same as an hour in which it runs.

Machine

This step spreads the cost of owning the machine over a year: depreciation, interest and insurance.

Owning a machine costs money every year, whether it runs or not. Depreciation is the loss of its value over its economic life. Interest is the cost of the money tied up in it: the rate on the loan that paid for it, or what the money would earn elsewhere. Insurance is charged on the same tied-up value. Interest and insurance are worked out on the average of the machine’s values at the start of each year of its life, which gives one yearly figure for every year; actual interest and insurance are higher in the early years and lower later.

Uses the scheduled hours from Scheduled Hours.

Purchase price,

P

($)

What the machine cost, with delivery and installation.

Salvage value,

s

(% of the price)

What the machine can be sold for at the end of its economic life, as a share of the price. For forestry and road machines it is often estimated at 10 to 20% (FAO, 1992, 3.3.3).

Depreciation From the economic life From a yearly rate

Depreciation can be worked out from the economic life or from a yearly rate of the purchase price; with a rate, the life follows from the rate and the salvage value.

Economic life,

N

(years)

The years over which the machine works at an acceptable cost and output. It can differ from the depreciation period in the accounts. A life given in operating hours is divided by the hours the machine runs in a year. To enter a rate from the accounts instead, choose depreciation from a yearly rate.

Interest rate,

i

(% a year)

The rate on the loan that paid for the machine, or what the money would earn invested elsewhere. Set it to 0 to leave interest out.

Insurance rate,

u

(% a year)

The yearly premium as a share of the machine’s value. The calculator applies it to the average annual investment shown in the results.

Depreciation

D

$12,000$3.333 per hour

Average annual investment

\mathrm{AAI}

$96,000

Interest

I

$6,720$1.867 per hour

Insurance

U

$480$0.1333 per hour

S = s\,P

D = \frac{P - S}{N}

I = i\,\mathrm{AAI}

U = u\,\mathrm{AAI}

where $S$ is the salvage value, the share $s$ of the purchase price $P$ ; $D$ is the depreciation a year over the economic life $N$ in years; $I$ is the interest a year, the interest rate $i$ times the average annual investment $\mathrm{AAI}$ ; $U$ is the insurance a year, the insurance rate $u$ times $\mathrm{AAI}$ .

Salvage value S = 20% × $150,000 = $30,000; depreciation ($150,000 − $30,000) ÷ 10 = $12,000 a year; average annual investment ($150,000 − $30,000) × (10 + 1) ÷ (2 × 10) + $30,000 = $96,000; interest 7% × $96,000 = $6,720 a year; insurance 0.5% × $96,000 = $480 a year. Per scheduled hour (3,600 h a year): depreciation $3.333, interest $1.867, insurance $0.1333.

Equations

S = s\,P

D = \frac{P - S}{N}

N = \frac{1 - s}{d}

\mathrm{AAI} = \frac{(P - S)(N + 1)}{2N} + S

I = i\,\mathrm{AAI} \qquad U = u\,\mathrm{AAI}

$S$ is the salvage value, the share $s$ of the purchase price $P$ . $D$ is the depreciation in a year, straight-line over the economic life $N$ in years. With a yearly rate, $d$ is the share of the purchase price written off each year; the economic life $N$ then follows from $d$ and the share $s$ , so that $D = d\,P$ . $\mathrm{AAI}$ is the average annual investment: with straight-line depreciation, the average of the machine’s values at the start of each year of its life. $I$ is the interest and $U$ the insurance in a year, the rates $i$ and $u$ times AAI.

Depreciation, interest on the average annual investment and insurance are based on FAO (1992, 3.4.1, 3.4.2, 3.4.4). FAO includes interest even where a firm’s accounts leave it out: without it, machines of low and high initial cost may compare unrealistically (3.4.2).

Assumptions

Depreciation is straight-line over the economic life, which may differ from the depreciation schedule in the accounts (FAO, 1992, 3.4.1).
With a yearly rate, depreciation is charged at that rate until the machine’s value reaches the salvage value, and stops there; the life is the time this takes. A rate that would give a life of under 1 year or over 50 years is set to the nearest allowed value. For a life that is not a whole number of years, the average annual investment is FAO’s formula with that life. That is this calculator’s convention.
Depreciation continues while the machine stands. That is the assumption of the standard machine rate calculation (Sessions, Berry and Han, 2021, p. 439). If wear rather than age ends the machine’s life, the yearly depreciation is overstated. Sessions, Berry and Han (2021, p. 440) propose lengthening the life in years by dividing it by the utilisation, the share of the scheduled hours in which the machine runs; here, enter the longer life.
Interest and insurance are charged on the average annual investment, one figure for every year. In one forestry example, a discounted cash flow gives a total machine rate of $139.05 an hour, against $140.60 by the average-investment method (Sessions, Berry and Han, 2021, p. 441).
For a leased machine, the lease payments take the place of depreciation and interest: enter the total of the lease payments as the price, 0% salvage value, the lease term as the life (with depreciation from the economic life) and 0% interest. The result labelled Depreciation then shows the yearly lease payment. If the lease includes insurance, enter 0%; if not, enter the yearly premium as a share of the average annual investment shown. That is this calculator’s convention.

Floor Space

This step adds the cost of the floor space the machine takes up.

A machine’s floor space has a cost whether the machine runs or not: rent or, for an owned building, its running costs and the money tied up in it. The area to enter is the rectangle that holds the machine, its guarding and the working space around it. Aisles, stores and offices shared with other machines are not part of it: add the machine’s share of them to the area, or cover them in the supervision and overheads percentage of the next step, and count each cost once.

Uses the scheduled hours from Scheduled Hours.

Floor space

F

$1,800$0.5000 per hour

F = A\,a

where $F$ is the cost of the floor space a year, $A$ the floor area in square feet, and $a$ is the cost of floor space per square foot a year.

Floor space 180 sq ft × $10 = $1,800 a year; per scheduled hour $1,800 ÷ 3,600 h = $0.5000.

Equations

F = A\,a

$F$ is the cost of the floor space in a year: the floor area $A$ in square feet times the cost $a$ per square foot a year.

FAO (1992, 3.4.5) counts the cost of storing and protecting equipment among the fixed costs, largely independent of the hours of use. FAO does not cover floor space in a plant; extending its rule to the floor a machine occupies is this calculator’s own step.

Assumptions

Space shared with other machines is counted either in the area here or in the supervision and overheads percentage, not in both. That is this calculator’s convention.

Operators and Overheads

This step adds the cost of the people who run the machine, with a percentage for supervision and overheads.

Operators are paid for their shifts whether the machine runs or stands. Enter the number of people employed to run it across all shifts, so that holidays, sick leave and relief are covered: two shifts with one operator each, plus a relief operator shared with four other machines, come to 2.2 people. Where one operator tends several machines, enter the share, for example 0.5 for two machines. Supervision, production planning, quality control and administration are added as a percentage of the operators’ cost.

Uses the scheduled hours from Scheduled Hours.

Operators

L

$130,000$36.11 per hour

Supervision and overheads

V

$65,000$18.06 per hour

L = m\,W\,(1 + e) \qquad V = v\,L

where $L$ is the operators’ cost a year: $m$ operators, each with gross pay $W$ a year, plus the employer costs $e$ as a share of pay; $V$ is the cost of supervision and overheads a year, the share $v$ of $L$ .

Operators 2 × $50,000 × 1.30 = $130,000 a year; supervision and overheads 50% × $130,000 = $65,000 a year. Per scheduled hour: $36.11 and $18.06.

Equations

L = m\,W\,(1 + e)

V = v\,L

$L$ is the cost of the operators in a year: $m$ people, each paid $W$ a year, plus the employer costs $e$ as a share of pay. $V$ is the cost of supervision and overheads in a year, the share $v$ of $L$ .

Labour costs include direct wages and employer costs such as payments for health and retirement, and the cost of supervision may be spread over them (FAO, 1992, 3.2.3). The hours people work often differ from the hours the machine works; FAO (1992, 3.6) notes that what matters is to define one convention and use it consistently. This calculator’s convention is the year’s cost of everyone employed to run the machine, spread over its scheduled hours.

Assumptions

Operators are paid for all the scheduled hours, whether the machine runs or not. Miyata (1980, p. 11) notes that wages are mostly paid on the scheduled operating time and calculates labour cost on that basis.
Overtime, bonuses and piece rates are not entered separately; their yearly average belongs in the pay.
Other overheads are added in the same way as supervision, as a percentage of the operators’ cost. FAO (1992, 3.2.3) spreads supervision over the labour costs; extending this to the other overheads is this calculator’s convention.

Cost of One Hour

This step adds up the year’s costs and divides them by the scheduled hours.

The result is what one hour of the machine or line costs whether it runs or not. It is the rate the OEE calculator applies to the minutes of planned production time lost to downtime, speed losses and rejects. It is not a rate for quoting a job, which would also carry energy, repairs and tooling (costs that grow with the hours the machine runs) and a margin, and would be spread over the hours the machine actually runs. The breakdown shows which costs weigh most, and so which inputs are worth checking first.

Uses the results of the four steps above.

Cost of one hour

c_h

$60.00

The year’s costs$216,000

c_h = \frac{D + I + U + F + L + V}{H}

where $c_h$ is the cost of one hour; $D$ , $I$ and $U$ are the machine’s depreciation, interest and insurance, $F$ the floor space, $L$ the operators and $V$ the supervision and overheads, each a year, from the steps above; $H$ is the number of scheduled hours a year, from Scheduled Hours.

The year’s costs $12,000 + $6,720 + $480 + $1,800 + $130,000 + $65,000 = $216,000; cost of one hour $216,000 ÷ 3,600 h = $60.00.

The curve shows the cost of one hour divided by the utilisation, the share of the scheduled hours in which the machine runs: the same costs per productive hour. The converted figures suit quoting, once running costs and a margin are added, not the OEE calculator, which takes the cost of one hour above and counts the lost minutes itself. The utilisation can be measured from camera images (machine monitoring).

Use this cost of one hour in the OEE calculator’s Cost of Losses step.

Equations

c_h = \frac{D + I + U + F + L + V}{H}

$c_h$ is the cost of one hour of the machine or line, whether it runs or not: the year’s depreciation $D$ , interest $I$ , insurance $U$ , floor space $F$ , operators $L$ , and supervision and overheads $V$ , divided by the scheduled hours $H$ .

In FAO’s terms (1992, 3.2), the year’s costs are the fixed and labour parts of a machine rate; FAO spreads fixed costs over the hours of work, and this calculator over the scheduled hours. Miyata (1980, p. 12) converts labour cost per scheduled hour to a cost per productive hour, the hours the machine actually runs, by multiplying it by the scheduled hours over the productive hours. Dividing this calculator’s result by the utilisation, productive hours as a share of scheduled hours, converts it in the same way. The converted figure suits quoting, not the OEE calculator, which counts the lost minutes itself.

Assumptions

Running costs are left out: energy, lubricants, repairs and maintenance, and tooling. FAO (1992, 3.5) counts fuel, lubricants, tyres, and maintenance and repairs as operating costs, which change with the hours of use; tooling is treated here like FAO’s tyres.
A margin is not included: the result is a cost, not a price.

Cite as: Jacek Garbuliński, Machine Hour Rate Calculator, Blixild, 2026, https://blixild.com/machine-hour-rate-calculator.html

Questions and Answers

When should I use this calculator?

When you need the cost of an hour of a machine or line that does not depend on whether it runs: to price downtime, speed losses and rejects in the OEE calculator, to see how a second or third shift changes the cost of an hour, or to compare machines of different prices on the same basis. It needs figures most plants keep or can estimate: the purchase price, the shift pattern, the floor area, the operators’ pay and a supervision and overheads percentage. With estimates instead of figures from the accounts, the result is indicative only.

How does it differ from a machine hour rate for quoting work?

Miyata’s worked example (1980, p. 12) gives the total equipment cost per productive hour, the hours in which the machine actually runs, including the operating costs (fuel, lubricants, maintenance and repairs) and labour. A price quoted for work also adds a margin. This calculator gives the cost per scheduled hour without running costs. Dividing it by the utilisation, the share of the scheduled hours in which the machine runs, gives the same costs per productive hour; the running costs (energy, repairs and tooling) and any margin then still have to be added.

Why does an idle hour cost the same as a running hour?

Within the scheduled hours, because the costs counted here go on whether the machine runs or not. Depreciation, interest and insurance are fixed costs (Miyata, 1980, p. 4), floor space is treated the same way, and operators are paid for their scheduled hours. The standard calculation also assumes the machine loses value while it stands (Sessions, Berry and Han, 2021, p. 439). If wear rather than age ends its life, Sessions, Berry and Han (2021, p. 440) propose dividing the life in years by the utilisation; enter the longer life as the economic life (with depreciation from the economic life), and the depreciation per hour is lower.

How do I enter a leased machine?

Enter the total of the lease payments as the price, 0% salvage value, the lease term in years as the economic life (with depreciation from the economic life) and 0% interest. The result labelled Depreciation then equals the yearly lease payment, for level payments. If the lease includes insurance, enter 0% insurance; if not, enter the yearly premium divided by the average annual investment shown, times 100. If the lease also covers maintenance or other running costs, take them out of the payments first, as running costs are left out. That is this calculator’s convention.

Can I enter a depreciation rate instead of the economic life?

Yes: in the Machine step, choose depreciation from a yearly rate and enter the share of the purchase price written off each year. Depreciation is then charged at that rate until the machine’s value falls to the salvage value, and stops there: the value never goes below the salvage value. The economic life is the time this takes: $N = (1 - s)/d$ . For example, 10% a year with a salvage value of 20% gives a life of 8 years; at 14% the life is 5.7 years, and the value reaches the salvage value during year 6.

With a rate, the salvage value does not change the yearly depreciation, $d\,P$ ; it sets how long depreciation lasts, and a higher salvage value raises interest and insurance slightly, as the machine’s average value is higher.

A rate and a life cannot both be entered: with straight-line depreciation down to the salvage value, the rate, the life and the salvage value are tied, $d\,N = 1 - s$ , so the life and the salvage value already set the rate (8% a year in the worked example), and a different rate would contradict them. A rate that would give a life of under 1 year or over 50 years is set to the nearest allowed value, and at a salvage value of 100% there is no depreciation.

Where do the numbers come from?

The purchase price comes from the fixed-asset register, the interest rate from the loan agreement or the firm’s cost of capital, and the insurance rate from the policy’s premium as a share of the machine’s value. Salvage value and economic life are estimates, from prices of similar used machines and the firm’s replacement practice; a depreciation rate comes from the depreciation schedule in the accounts.

The cost of floor space comes from the lease or the building’s accounts, the pay and employer costs from payroll, the supervision and overheads percentage from the cost accounts, and the shift pattern and the number of operators from the shift plan. The utilisation, needed to turn the result into a cost per productive hour, can be measured from camera images (machine monitoring).

Sources

FAO (1992). Cost Control in Forest Harvesting and Road Construction. FAO Forestry Paper 99. Rome: Food and Agriculture Organization of the United Nations. Chapter 3, Calculation of Machine Rates. https://www.fao.org/4/T0579E/t0579e05.htm

Miyata, E. S. (1980). Determining fixed and operating costs of logging equipment. General Technical Report NC-55. St. Paul, MN: USDA Forest Service, North Central Forest Experiment Station. https://research.fs.usda.gov/treesearch/10120

Sessions, J., Berry, M., Han, H.-S. (2021). Machine Rate Estimates and Equipment Utilization - A Modified Approach. Croatian Journal of Forest Engineering, 42(3), 437-443. https://doi.org/10.5552/crojfe.2021.1026

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