On Thu, 25 Mar 2004 00:23:35 -0800, "Tarver Engineering"
wrote:


"Kevin Brooks" wrote in message
...

"Yet". You need to add that. As the order volume increases, the unit cost
decreases. Simple concept--even you should be able to grasp it.

No Kevin, the $110 million does not include any amortization; therefore
there is no decrease in price for volume under "each" accounting. These
airplanes are costing about $220 million per airframe under current buy
numbers and will probably reach $300 million per airframe when all the
reductions in the buy are done. (160 pieces)


Costing of aircraft is never a simple exercise and it is increasingly
driven not by accounting, but by political posturing. If one wants a
contract, the pricing is based on unit fly-away cost. If one opposes
the purchase, then the cost is fully amortized, life-cycle cost with
spares and support equipment---OMIGOD, we can't afford it!

When ATF was first put out for proposal the $$$/weight criteria were
$30M per airplane and 50K pounds max. Clearly the weight is an
objective measurement, but the dollar cost was releated to a purchase
of 600+ and was going to be unit fly-away cost. As the buy numbers
have reduced (a not unreasonable reaction to a considerably changed
threat), the cost per unit has risen. Costs of $220M per aircraft are
clearly loaded numbers with full R&D incorporated.

Once you've amortized R&D costs, however--and that's been done already
in the long term contract numbers--then the cost per unit for
additional purchases can be expressed in a fairly straightforward
number. Want to buy fifty more? Then that will cost you XXX dollars.
The factory is built, the tools are in place, the R&D has been already
incurred and all that is going to be added is material and labor.

Throughout the process you can revisit and for political argument's
sake recalculate the total cost of the program. That doesn't relate to
contracts, but it does relate to an averaging of unit cost. Buy more
units and lo, the cost per unit goes down. Cut the buy and, surprise,
the cost per unit goes up.


Ed Rasimus
Fighter Pilot (USAF-Ret)
"When Thunder Rolled"
Smithsonian Institution Press
ISBN #1-58834-103-8