How to calculate CNC machine hour rate?

The Importance of Calculating CNC Machine Hour Rate

Calculating CNC machine hour rate is an essential process for any manufacturing company looking to accurately price their products and services. By understanding how to calculate this rate, businesses can ensure that they are covering all of their costs and making a profit on each job.

What is CNC Machine Hour Rate?

CNC machine hour rate is the cost of running a CNC machine for one hour. This rate includes the cost of machine depreciation, overhead costs, labor costs, and any other expenses associated with running the machine.

Factors to Consider When Calculating CNC Machine Hour Rate

1. Machine Depreciation: This is the decrease in value of the CNC machine over time. To calculate this cost, divide the machine’s purchase price by its estimated lifespan in hours.

2. Overhead Costs: These are the indirect costs associated with running the CNC machine, such as rent, utilities, and maintenance. To calculate this cost, divide the total overhead costs by the number of hours the machine is expected to run in a year.

3. Labor Costs: This includes the wages of the machine operator and any other employees involved in running the machine. To calculate this cost, multiply the hourly wage by the number of hours the machine is expected to run in a year.

4. Other Expenses: This includes any additional expenses associated with running the CNC machine, such as tooling costs or material costs. These expenses should be factored into the machine hour rate calculation.

Formula for Calculating CNC Machine Hour Rate

The formula for calculating CNC machine hour rate is:

CNC Machine Hour Rate = (Machine Depreciation + Overhead Costs + Labor Costs + Other Expenses) / Number of Machine Hours

Example Calculation

Let’s say a CNC machine was purchased for $100,000 and is expected to last 10,000 hours. The total overhead costs for running the machine are $50,000 per year.

The machine operator’s hourly wage is $20, and the machine is expected to run for 2,000 hours in a year. Additionally, there are $10,000 in other expenses associated with running the machine.

Using the formula above, the CNC machine hour rate would be:

(($100,000 / 10,000) + ($50,000 / 2,000) + ($20 * 2,000) + $10,000) / 2,000 = $35 per hour

Benefits of Calculating CNC Machine Hour Rate

1. Accurate Pricing: By calculating the machine hour rate, businesses can ensure that they are pricing their products and services accurately to cover all costs and make a profit.

2. Cost Control: Understanding the costs associated with running a CNC machine allows businesses to identify areas where they can cut costs and improve efficiency.

3. Profitability: Calculating the machine hour rate helps businesses determine the profitability of each job and make decisions on which jobs to take on based on their profit margins.

Conclusion

Calculating CNC machine hour rate is a crucial process for manufacturing companies to ensure accurate pricing, cost control, and profitability.

By considering factors such as machine depreciation, overhead costs, labor costs, and other expenses, businesses can determine the true cost of running their CNC machines and make informed decisions to improve their bottom line.