A machine cost-recovery rate can be estimated as annual standing costs allocated to the resource divided by normal productive hours, plus running cost for one productive hour. Normal capacity accounts for planned downtime, but a temporary shortage of orders should not automatically increase the accounting cost allocated to each unit.
This is a planning model for building a rate, not an automatic quote price or a financial-reporting inventory valuation.
Separate standing and running costs
Start by defining how each cost behaves and where the resource boundary sits. The same expense can be fixed, variable or mixed depending on the contract and the shop’s operating model.
| Model layer | Example items | Treatment |
|---|---|---|
| Standing or fixed costs | lease or depreciation, insurance, standing service agreement, allocated floor space and fixed department overhead | annual amount divided by normal productive hours |
| Running costs | power driven by operation, coolant, tool consumption, hourly attendance and the variable part of maintenance | cost per productive hour added to the rate |
If operator labour is inside the machine rate, do not charge the same attendance again as another operation. If one operator tends several machines or attendance is priced separately, use a documented allocation rule. Split mixed costs—for example, maintenance with a retainer and intervention fees—between standing and running portions.
Establish normal productive capacity
Normal productive hours represent the resource’s expected average capacity under ordinary conditions after planned maintenance, setup and other normal time losses. A starting method is to multiply normally available hours by utilization supported by several representative periods. For example, 1,760 hours at 70% normal utilization gives 1,232 hours. That is an illustration, not an industry benchmark.
Do not automatically replace that denominator with the low actual hours from a weak-demand month. For inventory accounting, IAS 2 bases fixed production-overhead allocation on normal capacity: low production does not increase the fixed overhead allocated to each unit, and unallocated overhead is recognised as a period expense. IAS 2 governs inventory accounting, not commercial pricing. Management can run a separate utilization scenario for a pricing decision, but should label it as a management scenario rather than an accounting unit cost.
Cost-rate and sales-rate formulas
Cost-recovery rate = annual standing costs ÷ normal productive hours + running costs per productive hour.
For example, PLN 100,000 of standing cost, 500 normal productive hours and PLN 20 of running cost per hour produce a PLN 220/h cost-recovery rate.
When commercial policy uses margin on the net sales price:
Net sales rate = cost-recovery rate ÷ (1 − margin).
Here, margin means net sales price less cost, divided by net sales price. It is not markup on cost. A PLN 220/h rate at a 20% margin produces a PLN 275/h sales rate. Mathematically, margin must stay below 100%; the calculator limits it to 0–95% so the result remains finite. That technical cap is not a commercial recommendation.
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Machine hourly rate calculator
Separate annual standing costs from costs that run with each productive hour. All calculations stay in this browser.
Standing costs / annual
Running costs / productive hour
Normal productive hours
1232Standing-cost recovery
PLN 146.10/hRunning costs
PLN 75.00/hCost-recovery rate
PLN 221.10/hNet sales rate at selected margin
PLN 260.12/hPlanning model: standing costs ÷ normal productive hours + running cost per hour. Margin means profit as a share of net sales price; the calculator accepts 0–95% because 100% would divide by zero. The result excludes VAT, sales tax and other taxes.
Interpreting the result
The calculator shows standing-cost recovery, running costs and their sum separately. It provides a planning baseline for one resource, but does not decide whether setup, inspection, CAM programming and operator attendance belong inside this rate or on separate lines. Apply one consistent rule to avoid omitting or double-charging them.
Within a CNC cost estimate, the rate is one input. Time, billing unit and quantity remain just as important.
Taxes and result boundary
The calculator result is a net rate before VAT, sales tax and other taxes. It does not determine whether input VAT is recoverable, calculate income tax, or replace tax and financial-reporting depreciation rules. Choose one consistent input basis—for example, net amounts where VAT is recoverable—and validate it with an accountant familiar with the business’s jurisdiction.
When to update the model
Review the assumptions when any of these change materially:
- lease or financing cost;
- energy, maintenance or employment cost;
- shift pattern;
- the evidence used to establish normal capacity;
- which overheads are charged separately.
Compare the model with normal and actual productive hours, running costs and unabsorbed standing costs. Revise normal capacity after a documented change in conditions or the long-term operating model, not after each fluctuation in the order book.
Limits and review
This is a planning model, not accounting or tax advice and not a price recommendation. Treatment of depreciation, labour and overhead depends on the business. Validate the cost boundary with the shop’s accountant or controller and with the person responsible for production before adopting the rate as pricing policy.
Review note: on 18 July 2026, the internal “Kostira Technical Review 2026-07” audit checked the formulas and terminology against source material. On 20 July, an unavailable ICMAI link was replaced with an official ICSI publication containing an equivalent machine-hour-rate example. This is not a signed external opinion from an accountant, tax adviser or CNC manufacturing technologist.
Sources and related guides
- ICSI: Suggested Answers — Cost and Management Accounting — official Institute of Company Secretaries of India material; the worked example on p. 42 separates standing charges from machine expenses and calculates the machine-hour rate.
- Controller General of Accounts: Management Accounting — official CGA material defining machine-hour rates and illustrating department-overhead allocation.
- IFRS Foundation: IAS 2 Inventories — the official standard page covering inventory conversion costs and production-overhead allocation.
- Inputs should come from the shop’s own cost records, schedule and utilization report.