Cost Per Flying Hour Analysis of the C-141
AIR FORCE INST OF TECH WRIGHT-PATTERSON AFB OH SCHOOL OF LOGISTICS AND ACQUISITION MANAGEMENT
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This paper sought to examine if DoDs current transfer pricing method places AMC in a price competitive position with the government commercial rates and promotes managers to make the best decisions. Attention was paid to the stated customer concerns that current transfer pricing methods incorporate overhead and sunk costs that are not attributable to routine movement of peacetime cargo and could make AMC non price competitive with commercial vendors. The findings are that AMC currently uses full cost transfer pricing, as required by DoD policy, that includes significant overhead and sunk costs associated with its wartime responsibilities. The full cost method of transfer pricing is not in congruence with the generally accepted accounting practices and the private sector position that, with excess capacity and no outside market, a unit should transfer price at variable cost. The current cost per flying hour is inflated by fixed costs, primarily overhead and sunk cost, by 6O.47 percent. This means the CPFH is 2.5 times greater than the cost that AMO incurs for operating a peacetime mission.
- Transport Aircraft
- Economics and Cost Analysis