# Machine Hour Rate (MHR)
MHR = Hourly rate of running a machine — i.e., total cost of running the machine ÷ total hours the machine was used.
$$\text{Machine Hour Rate} = \frac{\text{Total Cost of running the machine}}{\text{Effective Machine Hours}}$$
It is the most accurate absorption method for machine-intensive production.
## Two Types of Cost
### A. Fixed / Standing Charges (do not vary with hours used)
These exist whether the machine runs or not.
| Item | Notes |
|---|---|
| Depreciation not related to activity | Time-based depreciation |
| Rent of machine | Fixed lease/space |
| Insurance of machine | Annual premium |
| Wages of workers and Bonus (for the machine) | Even if idle, paid |
| General Overheads of Department | Allotted share |
| Total Fixed Charges | XXX |
### B. Running Charges (vary with hours machine is actually run)
| Item | Notes |
|---|---|
| Repairs and Maintenance | Wear-and-tear based |
| Power | Direct usage cost |
| Depreciation related to activity | Usage-based depreciation |
| Lubricants | Per running hour |
| Sundry Variable Expenses | Various small costs |
| Total Running Charges | XXX |
## ⚠️ Important — Calculating the Hours
### Hours Paid to Workers
```
Hours Paid = Normal Hours − Absent Without Pay
```
(Absence with pay is still paid for — so it remains in 'hours paid'.)
### Effective Machine Hours (used in denominator)
```
Effective Machine Hours = Normal Hours
− Absent Without Pay
− Absent With Pay
− Idle Time
(= actual hours the machine was running)
```
> Take special care of:
> - Number of machines (multiply by no. of machines)
> - Number of months (annual figures need to be allocated)
## Comprehensive vs. Ordinary Machine Hour Rate
- Ordinary MHR = (Running charges only) ÷ Machine Hours.
- Comprehensive MHR = (Fixed + Running) ÷ Machine Hours, including operator wages.