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Machine Hour Rate Allocation
Meaning
The accounting practice of assigning factory overhead, depreciation, and energy expenses to specific injection molding presses based on their operating hours determines part costs. This pricing method, called machine hour rate allocation, governs how production quotes are calculated for different sizes of molding equipment. The calculation applies to capital-intensive manufacturing facilities where press clamp force ranges from small bench machines to large multi-ton presses.
Cost Distribution
Total factory overhead is divided by the planned annual operating hours of each molding cell. Machine hour rate allocation ensures that a large machine with higher power consumption and floor space carries a proportional share of the overhead. This method prevents small, efficient molding cells from subsidizing the operational expenses of heavy machinery.
Operational Pricing
Estimators use these hourly rates to calculate the cost of a part by multiplying the rate by the cycle time. A high hourly rate necessitates rapid cycle times or high cavity counts to keep the part price competitive. Tooling layouts are therefore optimized around the rate of the selected machine class.
Financial Performance
Inefficient scheduling that leaves large machines idle leads to unrecovered factory expenses. If actual production hours fall below the forecast, the actual cost of running the cell rises above the allocated rate. Molding shops must maintain high utilization to ensure cost recovery.