Each workcenter’s Direct OH is comprised of machine depreciation + imputed interest + machine maintenance + energy to run the machine + annual supplies. We calculate an annual workcenter budget considering these factors and translate it into an hourly rate based on the annual earned machine hours for the workcenter.

Annual Earned Machine Hours = Capacity (# of shifts * hours per shift * # of work days per week *number of working weeks per year) * Machine Utilization (% time machines are running)

The capacity varies by region, taking into account their standard work week (e.g., shifts per day, working days per week), typical holiday / vacation allotment, etc.

Machine Depreciation — Machine depreciation includes the cost to buy the machine and the cost to install the machine. We use straight line depreciation and assume a $0 salvage value. For most machines, we depreciate the machine over 10 years. Machine costs are obtained from a number of sources, most frequently the machine manufacturer or a reseller. In some cases we estimate the cost of the machine by considering the cost of similar machines.

Imputed Interest — Imputed interest is the interest on the capital used for the machine investment that is assumed, even though no physical interest is received. aPriori uses a standard formula published by the Fraunhofer Institue and RWTH Rachen University in Germany. Annual Imputed Interest = ((Total Machine Cost + Salvage Value) / 2) * Imputed Interest Rate.

Imputed interest rates are obtained from the World Bank and Organisation for Economoic Co-operationand Development (OECD).

Machine Maintenance — Estimated annual expense based on industry research. Varies from 1.25% - 10% of machine cost for different machine types; most commonly it is 3% - 6% of a machine’s cost per year.

Energy to run the machine — (machine power * annual earned machine hours) * cost of energy

Machine Power — Machine Power is frequently found on the manufacturer’s spec sheet. In some cases we estimate the power by analyzing energy usage of similar machines.

Cost of Energy — The regional electricity rate sourced from the Kerkhoff Consulting Group, and the following bureaus are used as secondary sources: Europe’s Energy Portal, US Energy Information Administration, Anneel (the Brazil Electricity Regulatory Agency, and others).

Annual Supplies — aPriori’s Starting Point Cost Models contain a variable for annual supplies, though aPriori does not populate it in the Regional Data Libraries. The field is provided for ease of deployment to support companies that want to explicitly account for work center specific supplies in direct overhead.