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  • Question

    Do we have a defiinition of "Manufacturing Cost" or AUMC? Thanks COL Chris Oliver


    Answer

    There doesn’t seem to be one standardized definition for manufacturing cost in DoD acquisition; however, there are a number of sites that discuss the subject – included here are some that may interest you.
     
     
    1.   Reference: DoD 7000.14-R Volume 4, Chapter 20  “Job Order Cost Accounting”
     
    Brief Excerpt:  PRODUCTION COST COMPONENTS 
       
    Production cost consists of direct labor, direct material, and indirect cost (overhead). Direct labor is labor used to transform various components into a finished product or service. The labor must be directly attributed to the job order. Direct material is that material specifically charged to the job. It has a sufficiently large value to be worth charging to the job and to be identified as a major cost element of the finished product or service. Normally, only the more significant items are classified as direct material. Production overhead consists of all indirect costs associated with the production or service processes other than general and administrative expenses. Typically, production overhead costs include, but are not limited to, indirect material or supplies, indirect labor, facility and equipment depreciation, repairs, maintenance, and occupancy costs.
    Each of these terms are defined.
     
     
     
     
    2.  I also have included information from the DAU site ACQuipedia - DoD 5000.4-M. These seven DoD standardized cost definitions do not specifically include “Manufacturing Cost” or “Average Unit Manufacturing Cost.”
    Top of Form

    Cost Terms - DEFINITION

    Seven cost terms are standardized by DoD 5000.4-M, Cost Analysis Guidance and Procedures, December 1992. These seven cost terms are: development cost; flyaway cost; weapon system cost; procurement cost; program acquisition cost; operating support (O&S) cost; and life-cycle cost. This standardization of terminology provides a uniform and consistent frame of reference for identifying what is included or excluded from each cost term, and how each cost term relates to work breakdown structure elements, budget appropriations, as well as to life-cycle cost categories. These terms also establish a basic definitional structure for understanding DoD acquisition program costs when used in fiscal guidance, Program Objective Memorandums, Program Decision Memorandums, budget submissions (e.g. budget exhibits), and Selected Acquisition Reports.




     
    GENERAL INFORMATION/NARRATIVE
    DoD uses a number of different cost terms in various PPBE documents, such as the Program Objectives Memoranda (POM), Budget Estimate Submissions (BES), etc.; in acquisition program reports such as the Defense Acquisition Executive Summary (DAES) and the Selected Acquisition Report (SAR); and in various congressional information sheets. The seven cost terms shown in Figure 1 have been standardized to ensure consistency in the defense acquisition process. DoD 5000.4-M specifically defines what is included or excluded from each term and identifies relationships to WBS elements, funding appropriations and cost categories. Note that a WBS element can be funded by multiple appropriations.

    Figure 1
    In Figure 1, the appropriation(s) which may be covered by a particular cost term are shown in bold and underlined at the top of the cost term box. The items shown below the appropriation(s) are some of the specific WBS elements that are included in that cost term.
    ·  Development Cost is the cost of all research and development-related activities, contract and in-house, necessary to design and test the system. It includes a number of WBS elements, including Prime Mission Equipment, Support Equipment, Training, etc. Prototypes and test articles are included in this cost category. Development costs are funded with only the RDT&E appropriation and are included only in the R&D cost category.
    ·  Flyaway Cost (Rollaway, Sailaway, etc.) refers to the cost of procuring prime mission equipment (e.g., an aircraft, ship, tank, etc.). It is funded with Procurement appropriations and is part of the Investment cost category. Figure 1 shows that this term includes the WBS elements of Prime Mission Equipment, System Engineering/Program Management, System Test and Evaluation, Warranties, and Engineering Changes. (Note: DoD 5000.4-M defines flyaway cost as being funded out of the RDT&E and Procurement appropriations, but in practice, only the Procurement-funded portion of flyaway is considered relevant by decision-makers in DoD and in Congress.)
    ·  Weapon System Cost is funded completely from the Procurement appropriations. It is the procurement counterpart of Development Cost in that it contains the same WBS elements as Development Cost. Weapon System Cost consists of the Flyaway Cost plus the additional WBS elements shown in Figure 1.
    ·  Procurement Cost is also funded completely from the Procurement appropriations. It includes Weapon System Cost plus the WBS element of initial spares. For Navy shipbuilding programs, outfitting and post-delivery costs are also included when these costs are Procurement-funded.
    ·  Program Acquisition Cost is a multi-appropriation cost. It consists of all costs associated with developing, procuring and housing a weapon system. Because it consolidates development, procurement and military construction costs, RDT&E, Procurement and MILCON appropriations are included. This is the complete cost of acquiring a weapon system - ready to operate.
    ·  Operating and Support Costs are funded primarily with the O&M and Military Personnel appropriations. However, RDT&E, Procurement, and/or MILCON appropriations may also be used, as appropriate, based on the nature of the effort, after the weapon system has been deployed. This category includes all costs for personnel, equipment, and supplies associated with operating, modifying, maintaining and supporting a weapon system in the DoD inventory. This includes all direct and indirect costs. These costs do not include any of the development costs, procurement costs or any other part of the program acquisition costs for the weapon system, nor do they include any disposal costs for the weapon system. Because the system is already fielded, the MIL-HDBK 881B WBS does not apply to this cost term.
    ·  Life-Cycle Cost includes all WBS elements, all appropriations, and all cost categories. As shown in Figure 1, it is the sum of Program Acquisition Cost, Operating and Support Cost, and Disposal Cost for a system.



     
     
    3.   An additional source:
     
    Department of Defense DIRECTIVE NUMBER 5000.04
    August 16, 2006
    DPA&E
    SUBJECT: Cost Analysis Improvement Group (CAIG)
    Bottom of Form

     
    6. AUTHORITIES

    The CAIG serves as the principal advisor to the MDA on issues regarding an acquisition program’s cost. In this capacity, the CAIG Chair is authorized to:
    6.1. Establish substantive guidance to the DoD Components on preparing life-cycle cost estimates for acquisition programs that are subject to CAIG review. This guidance is set forth in Reference (b).
    6.2. Provide standard cost terms and associated definitions used in managing defense acquisition programs. The terms and definitions are found in Reference (b). The use of standardized cost terms and definitions throughout the DoD Components promotes communication within the Government (between the acquisition and budget communities) as well as between the Government and industry on program cost issues.
    6.3. Establish procedural guidance for certain cost data collection systems and monitor system implementation by the DoD Components. Such guidance includes the use of standard cost-reporting formats for each system. Systematic and institutionalized cost data collection by each of the DoD Components is important for credible cost estimates of current and future programs. The cost data collection systems subject to CAIG oversight are:
    6.3.1. CSDR System. The CSDR system serves as the primary source of acquisition cost data for MDAPs. Interim guidance is provided in Reference (j). The CSDR system consists of the two following subsystems:
    6.3.1.1. Contractor Cost Data Reporting (CCDR) System. The CCDR is the DoD primary source of systematically collecting data on development and production costs that contractors incur in performing work under acquisition program contracts. Detailed procedures and other implementing guidance are prescribed on the Defense Cost and Resource Center (DCARC) web site (http://dcarc.pae.osd.mil). This guidance shall be incorporated into the revised DoD 5000.4-M-1 (Reference (k)).


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