David Krause9.1 The four methods
| Method | Principle | Suited to | Limit |
|---|---|---|---|
| Division costing | total cost / quantity | one product, mass production | fails with variants |
| Equivalence figures | convert variants via ratio numbers | batch production with proportional differences | the ratio must be stable |
| Surcharge costing | overhead as a percentage on direct costs | single-part and small-series production | distorts with unequal cost centers |
| Machine hour rate | machine costs per hour, remainder as surcharge | capital-intensive production with differing assets | higher recording effort |
9.2 When does introducing the MHR pay off?
Machine-hour-rate costing is more involved than a blanket surcharge. It pays off as soon as the cost centers differ markedly — and that is precisely the rule in machining.
| Cost center | MHR | Surcharge | Full hour rate |
|---|---|---|---|
| 200 · CNC turning | €20.13/MH | 39.8 % RGK | €64.87/h |
| 210 · CNC 5-axis milling | €46.37/MH | 35.1 % RGK | €89.60/h |
| 240 · assembly | — | 60.8 % FGK | €51.46/h |
The table shows both in the same company: the machine cost centers run via the MHR, assembly deliberately stays on the differentiated FGK surcharge (60.8 %). That is not a contradiction but the correct allocation — each center is charged via the quantity that drives its costs.
9.3 Differentiated FGK surcharge or MHR?
Not every company needs machine hour rates. A company with differentiated FGK surcharges — its own percentage per cost center — is far ahead of the blanket surcharge and can be entirely sufficient for labor-intensive production. The decision hangs on a single figure: the machine cost share per center.
| Cost center situation | Right method | Why |
|---|---|---|
| Labor-intensive, low machine tie-up (assembly, welding, inspection) | differentiated FGK surcharge | overhead follows personnel deployment — the labor reference is correct |
| Mixed, machine cost share < 30 % | differentiated FGK surcharge suffices | distortion from the labor reference stays within tolerance |
| Machine cost share > 30 %, homogeneous park | MHR per center group | one rate for similar machines is enough, effort manageable |
| Machine cost share > 30 %, heterogeneous park | MHR per machine/cost center | only the individual MHR captures the large rate differences (see 9.5) |
A differentiated FGK rate becomes dangerous when applied to a capital-intensive center whose machine costs do not correlate with labor. Example: an automated turning center runs unmanned — little direct labor, high machine costs. An FGK surcharge "on labor" charges far too little overhead there, because the reference base (labor) is small while the actual costs (machine) are large. Exactly this case demands the MHR — the differentiated surcharge cannot catch it.
9.4 Decision matrix: which method?
Answer the criteria and choose the method with the most hits for your situation. ★ = especially suited.
| Criterion | Blanket | Area-based | CC-based | MHR ★ |
|---|---|---|---|---|
| < 10 employees | ✓ | ✓ | ||
| 10–30 employees | ✓ | ✓ | ✓ | |
| > 30 employees | ✓ | ✓ | ||
| Homogeneous machine park | ✓ | ✓ | ✓ | |
| Heterogeneous park (CNC, die casting, assembly) | ✓ | |||
| Machine costs > 30 % of manufacturing costs | ✓ | ✓ | ||
| Single-part / small-series production | ✓ | ✓ | ✓ | ✓ |
9.5 Four machine types in MHR comparison
The same methodology from Chapter 7 (replacement-value basis, technical service life, OEE productive hours, six cost components), applied to four real asset types — directly comparable.
| Machine | RV | SL | hprod | Σ €/year | MHR €/MH |
|---|---|---|---|---|---|
| Injection molder 250 t (3-shift) | €215k | 12 yr | 4,609 | €70,202 | 15.24 |
| CNC 5-axis machining center (2-shift) | €410k | 10 yr | 2,819 | €96,040 | 34.07 |
| Die casting (Al, 2-shift) | €520k | 9 yr | 3,100 | €148,000 | 47.74 |
| Laser cutting system (2-shift) | €580k | 8 yr | 3,254 | €181,900 | 55.90 |
The factor of 3.7 between the cheapest and dearest machine shows why a blanket rate necessarily cross-subsidizes in a mixed park.
If the full hour rates of the manufacturing centers differ by more than about 20 percent, a blanket surcharge is no longer defensible. In the reference company, 74 percent lie between assembly and 5-axis milling — here a blanket rate would be grossly negligent. For three similar turning machines, by contrast, a common rate suffices.
Activity-based costing and target costing do not appear in this book. Both are methodologically interesting, but disproportionate for a manufacturing company of this size: activity-based costing needs a cost-driver analysis across all indirect areas, target costing a market research no contract manufacturer can provide. Whoever masters the four methods above cleanly covers the need.
