# Machine Hour Rate (MHR) Method
Machine Hour Rate absorbs overheads based on the hours a machine runs. There are two variants.
## A. Direct (Simple) Machine Hour Rate
- Includes only expenses directly connected with running the machine: power, depreciation, repairs & maintenance, insurance, etc.
- $$\text{MHR} = \frac{\text{Estimated machine-specific expenses for the period}}{\text{Estimated operational machine hours for the period}}$$
## B. Comprehensive Machine Hour Rate
- Recognises that beyond the direct machine expenses, there are department-wide manufacturing expenses — supervision, shop cleaning & lighting, consumable stores & shop supplies, shop general labour, rent & rates, etc. — not charged to any one machine.
- To stop these being left out of product cost, a share of these common expenses is added in when computing the rate.
### Steps to compute the Comprehensive MHR
1. Total the overheads apportioned to the production department.
2. Apportion these further to machines / groups of machines in the department.
3. Allocate machine-specific costs (those directly identifiable with the machine).
4. Estimate total productive hours for the machine.
5. Aggregate the apportioned overheads (Step 2) + allocated costs (Step 3) and divide by estimated total productive hours.
6. The result is the Machine Hour Rate.
## Direct vs Comprehensive — at a glance
| Direct MHR | Comprehensive MHR | |
|---|---|---|
| Costs included | Only machine-operating expenses | Machine expenses + share of department-wide expenses |
| Accuracy of product cost | Lower | Higher (nothing left out) |