FINANCIAL MANAGEMENT POLICY MANUAL

075341 COST DEFINITIONS
1. GENERAL.
The basic method for presenting procurement requirements is the
Procurement Programs Line Item (Exhibit P-1) prepared for the Congress
as supporting justification to budget estimates. The line item should
include all procurement costs required to acquire and initially deploy a
system except for its complement of initial spares, which is budgeted as
part of a separate line item covering all initial spares for all systems.
Within the individual line item, those costs related to the production of a
usable end-item of military hardware are commonly referred to as
"Flyaway Costs." This term has evolved in connection with aircraft and
missile programs although it equates to "Rollaway" in the case of vehicles
or "Sailaway" in the case of ships. It includes the cost of the basic unit to
be fabricated (airframe, hull, chassis, etc.), the propulsion/engine
equipment, electronics, armament (excluding ammunition), avionics,
installed Government-furnished equipment, other level three work
breakdown structure hardware/software subsystem elements, production
testing, and any project management costs appropriately budgeted in
Procurement appropriations. Production costs associated with the enditem
include both contract and in-house costs of all nonrecurring
engineering (pre-production, advance production, start-up, etc.), recurring
engineering, engineering support to production, tooling, manufacturing,
purchased equipment, quality control, allowance for engineering changes,
warranties, first destination transportation integral to contract price,
general and administrative charges and profit are also included in
"Flyaway Costs." First article testing for conformance with contract
requirements before or in the initial stage of production (including preproduction
models, initial production samples, test samples, first lots, pilot
models, and pilot lots) is also considered an element of "Flyaway Costs."
The balance of the individual line item is referred to as "Support Costs"
and contains those peculiar procurement costs required to deploy a system,
such as ground support equipment, training equipment, publications,
technical data, contractor technical services, etc. The sum of these two
segments within the line item is referred to as "Weapons System Cost."
Expense costs required to make Government-owned equipment available
to support new acquisition programs will be budgeted in the Operation and
Maintenance appropriations. An example of these costs is the
refurbishment of shipping containers and test equipment. This does not
apply to intrinsic expense costs required to make Government-owned
equipment available for the manufacture of the item being procured, such
as equipment necessary for the manufacturing process, equipment to be
incorporated into the item being manufactured (including initial
outfitting), and equipment necessary for production acceptance testing.
These are considered to be investment costs properly budgeted in the
procurement appropriations.
Financial Management Policy
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