Contract Manufacturing, Job Shop Quoting & Make-to-Order worked example

Labor Hour Rate at 62% direct labor utilization factor: a worked example

Here is what the math looks like when conditions slip. We hold every other input steady and drop direct labor utilization factor to 62%, then walk the calculation through step by step. Calculate loaded labor-hour rate for estimating custom work.

The inputs for this scenario

  • Recoverable direct-labor cost pool (annual): 73,500 $ (held at the documented default)
  • Billable direct labor hours (annual): 1,040 labor hr (held at the documented default)
  • Direct labor utilization factor: 62 % (the input this scenario stresses; the baseline uses 86)

Working through the calculation

  • The calculation starts from the formula this tool documents: base labor-hour rate = recoverable labor cost pool รท billable direct labor hours.
  • effective labor-hour rate after utilization works out to 43.82 $ / labor hr at these inputs, and this is the headline figure for the scenario.
  • Raw throughput works out to 70.67 $ / labor hr at these inputs.
  • direct labor utilization factor works out to 62 % at these inputs.
  • billable direct labor hours works out to 1,040 hr at these inputs.

How this compares with the baseline

  • Against the tool's baseline example, where direct labor utilization factor sits at 86% and the headline result is 60.78 $ / labor hr, this scenario comes in 27.91% below the baseline at 43.82 $ / labor hr.
  • The practical read: the gap between this scenario and the baseline is entirely attributable to direct labor utilization factor, so recovering it is worth quantifying in dollars before considering equipment or staffing changes. It uses one blended pool and one utilization factor, so a shop mixing low-skill assembly with high-skill toolmakers should run separate rates rather than averaging very different wage and burden levels into one number.

Results at a glance

  • effective labor-hour rate after utilization: 43.82 $ / labor hr (headline result)
  • Raw throughput: 70.67 $ / labor hr
  • direct labor utilization factor: 62 %
  • billable direct labor hours: 1,040 hr

Run it with your numbers

  • To rerun this with your own numbers, open the live Labor Hour Rate calculator, set direct labor utilization factor to your actual value, and adjust the remaining inputs to match your operation.

Last reviewed 2026-05-12.