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A 48,000 machine over eight years
The machine cost 48,000. You expect 3,000 of salvage after 8 years. Maintenance, power, and supplies run 4,200 a year. The machine is productive for 1,600 hours.
Machine cost: 25% lower
Change machine cost to 36,000 while keeping the other example values the same.
Machine cost: 25% higher
Change machine cost to 60,000 while keeping the other example values the same.
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Quick answer
What does the Machine hour rate calculate?
What does one productive machine hour cost after depreciation and running costs? This calculator uses machine cost, salvage value, useful life, annual running cost, and productive hours per year to estimate cost of one productive hour immediately in your browser.
With the values currently entered, the result is $6.14 — cost per productive hour. It also shows annual planning depreciation, annual machine cost, and productive hours.
How to use the Machine hour rate
- Replace the example values with your own numbers.
- Review the result and supporting figures as they update automatically.
- Check the formula and assumptions before using the estimate for a decision.
Inputs used
- Machine cost
- Salvage value
- Useful life — entered in years
- Annual running cost
- Productive hours per year — entered in hrs
Machine hour rate formula
Planning depreciation = max(0, cost − salvage) ÷ useful life. Hour rate = (depreciation + annual running cost) ÷ productive hours.
Assumptions
- IRS Publication 946 describes straight line as basis minus salvage, divided by the years of useful life. Most tangible property uses MACRS for the tax deduction. This split is a planning cost.
- SBA lists depreciation with rent and insurance as a fixed cost. Running cost is maintenance, power, and supplies you type. Setup time stays out of productive hours.
Verify the inputs
Authoritative sources
These sources explain the definitions, factors, or rules behind this tool. Their geographic scope is shown because an official source for one country is not automatically valid somewhere else.
Describes straight line as the same amount each year: subtract salvage value from basis, then divide by the years of useful life. Most tangible property must use MACRS, so this page is a planning split, not the tax deduction.
Break-even point: fixed costsUS Small Business AdministrationScope: US small-business planning; method is generalLists depreciation with rent, salaries, property taxes, insurance, and interest as fixed costs that do not change with production.
Sources do not endorse Calculum. Check the source date, scope, and your own documents before making a financial, tax, insurance, or reporting decision.
Practical guide
Machine hour rate example and edge cases
A machine hour rate spreads a year of machine cost across the hours it actually runs. IRS Publication 946 describes straight line as basis minus salvage, divided by the years of useful life. Most machines use MACRS on the tax return. This page uses the straight-line split as a planning cost, then adds the running cost you type.
Example: A 48,000 machine over eight years
The machine cost 48,000. You expect 3,000 of salvage after 8 years. Maintenance, power, and supplies run 4,200 a year. The machine is productive for 1,600 hours.
- Machine cost
- 48,000
- Salvage value
- 3,000
- Useful life
- 8 years
- Annual running cost
- 4,200
- Productive hours per year
- 1,600 hrs
Calculated result$6.14cost per productive hour
Planning depreciation is 5,625 a year. Add 4,200 and the annual cost is 9,825. Spread across 1,600 hours, one hour costs 6.14. The tax deduction follows MACRS.
Example results use the default display profile. The calculator above follows your selected country and units.
How to read the result
- Read the hourly cost first. Then check annual depreciation and the full annual cost. Fewer productive hours raise the rate even when the bill stays the same.
- Publication 946 requires MACRS for most tangible property. The deduction on the return uses the recovery period and convention, which can differ from this split.
Edge cases worth checking
Salvage value is still a guess
The 3,000 salvage comes off the amount you spread. A higher salvage lowers the hourly rate. If you will scrap the machine, set salvage to 0.
Changeovers are not productive hours
Productive hours are hours the machine is making something you can bill or sell. Leave setup time out of that count and the rate rises, which is the cost of the idle setup.
What changes the result most
Machine cost
Use a current amount for machine cost. Include fees or recurring costs that belong in the same figure.
Salvage value
Use a current amount for salvage value. Include fees or recurring costs that belong in the same figure.
Useful life
Keep useful life on the same time basis as the other inputs. Monthly and annual values are easy to mix up.
Try a different scenario
Small changes show whether the answer is stable or sensitive.
Machine cost: 25% lower
36,000$5.20cost per productive hour
Machine cost: 25% higher
60,000$7.08cost per productive hour
Salvage value: 25% higher
3,750$6.08cost per productive hour
Common mistakes
Check machine cost
IRS Publication 946 describes straight line as basis minus salvage, divided by the years of useful life. Most tangible property uses MACRS for the tax deduction. This split is a planning cost. Make sure this matches the number you enter.
Keep productive hours per year consistent
SBA lists depreciation with rent and insurance as a fixed cost. Running cost is maintenance, power, and supplies you type. Setup time stays out of productive hours. Use the same units and time period throughout the calculation.
Do not rely on one machine hour rate scenario
Run a cautious case and an optimistic case. The range is often more useful than one exact-looking number.
Use this result well
What does one productive machine hour cost after depreciation and running costs?
It does not replace a quote, contract, accountant, or local employment guidance.