Hourly cost rates are crucial project costing due to the substantial proportion of labor cost in projects. Yet, there is little published about calculating hourly cost rates, and it is a contentious topic in corporations. Therefore, an approach is provided in this paper that will improve the calculation of hourly cost rates. It is based on a novel approach to Activity-Based Costing (ABC) and a revised version of the CAM-I Capacity Model which is adopted to project-based industries. Both an example and a case are provided to allow detailed discussions.