Machine Shop Hourly Rate Calculations

Now a day’s hourly rate term is very popular in project based and other industries. It is also very helpful for analyze machine & manpower performance on financial basis. There are several parameters required for calculating man and machine hourly rate, in this article we will discuss each parameter in detail. Basically in project based industries estimated cost calculation is very essential to bidding any project & man-machine hourly rate helps to easily estimate upcoming customers’ requirements on cost basis.

Content   

• Basic understanding of organization finance structure.
• What is man & machine hourly rate?
• What are the fixed and variable expenses for hourly rate calculations?
• Factory Overhead for hourly rate calculation.

Basic understanding of organization finance structure.

Before we going to understand & calculate hourly rate let’s understand organization finance structure & it’s very helpful for calculating hourly rate.

In a very simple line, the key objective of running an organization is to make a profit. Basically each and every organizational activity categorized into two parts, operational activities and overhead activity. Meanwhile account & finance department record the cost parameters into operational cost and overhead cost, it may vary industries to industries. Now a day’s in many industries are adopting various technologies & latest software to capture each minor activities into system for future analysis. For any organization correct data generation is very important part & its helpful for taking prediction as per organizational requirement. 

Machine Hourly Rate.

Definition: – Machine hourly rate is basically any organization allowable to charge certain hourly amount and provide services based on customer requirements. Its calculated based on various parameters and its varies year on year. Majority of organizations are changes hourly rate on yearly basis based on various parameters.

Man Hourly Rate.

Definition: – Man hourly rate describe as for any organization is able to charge hourly manpower amount and against its provide the required services to various customers. Its also calculated based on various parameters, that we learn detail in this article.

Majority, for hourly rate calculations expenses are divided into two categories, fixed expenses and variable expenses. We will try to understand what are the parameters to be consider for calculating hourly rate in each category.

Fixed expenses for hourly rate calculations.

There are several fixed expenses category in hourly rate calculations and its varies industry to industry but as per below I will try to majority covered each category. As per below mention categories are in fixed nature but it may vary in critical conditions.

• Equipment Insurance: – In organizational best practices, they plan to take insurance of critical machines. This concept is not applicable for each & every organizations and machines, but in critical condition, machine major failure & natural disaster its help to recover money.
• Equipment interest cost: – Generally equipment procures based on bank loan & every loan payout based on every month or year installment.
• Equipment Depreciation: – Equipment depreciation is basically amount of money or value they loses every year or month on month basis. In hourly equipment rate calculations equipment depreciation is calculated based on hourly basis. Review below attached formula for calculate hourly rate of depreciation.

Hourly Equipment Depreciation = (Initial value of equipment – Scrap value of equipment) / working life of machine in hours

• Equipment Space Cost: – Space cost is considered based on how much space occupied by equipment review formula for calculate rent cost per equipment.

Equipment Space cost = Occupied space in square feet by equipment * space cost per square feet.

• Cost of Manpower & Supervisors: – Cost of manpower & supervisors includes labour as well as staff those who connected with equipment.

Variable expenses for hourly rate calculations.

In variable expenses calculations all the parameters are varies monthly or yearly. So in upcoming years forecasting point of view you can predict based on past data of variable parameters for hourly rate calculations.

• Cost of maintenance & service.
• Cost of spares & consumable.
• Other Miscellaneous expenses.
• Cost of power supply that equipment consumed certain period of time.

Now for basic operational and financial understanding we will also try to learn what are the other factory overheads for education purpose.

Factory overheads.

There are various factory overheads that increases liability for organizations. Many organizations plan to increase revenue greater than all the overheads so net profit will increase. Review below attached parameters that includes in factory overheads and it may vary industry to industry.

• Employees & Labour salary.
• Tours & travels expenses.
• Entertainment expenses.
• Administration expenses.
• Stationary charges.
• Telephone expenses.
• Security expenses.
• Housekeeping expenses.
• Education & Training expenses.
• Building furniture & Repair expenses.
• IT expenses.