Materials Support Costs

The salary structure, overhead structure, and labor hours fulfill three of four major pricing input requirements. The fourth major input is the cost for materials and support. Six subtopics are included under materials/support: materials, purchased parts, subcontracts, freight, travel, and other. Freight and travel can be handled in one of two ways, both normally dependent on the size of the program. For small-dollar-volume programs, estimates are made for travel and freight. For large-dollar-volume programs, travel is normally expressed as between 3 and 5 percent of the direct labor costs, and freight is likewise between 3 and 5 percent of all costs for material, purchased parts, and subcontracts. The category labeled "other support costs" may include such topics as computer hours or special consultants.

Determination of the material costs is very time-consuming, more so than cost determination for labor hours. Material costs are submitted via a bill of materials that includes all vendors from whom purchases will be made, projected costs throughout the program, scrap factors, and shelf lifetime for those products that may be perishable.

Upon release of the work statement, work breakdown structure, and subdivided work description, the end-item bill of materials and manufacturing plans are prepared as shown in Figure 14-6. End-item materials are those items identified as an integral part of the production end-item. Support materials consist of those materials required by engineering and operations to support the manufacture of end-items, and are identified on the manufacturing plan.

A procurement plan/purchase requisition is prepared as soon as possible after contract negotiations (using a methodology as shown in Figure 14-7). This plan is used to monitor material acquisitions, forecast inventory levels, and identify material price variances.

Manufacturing plans prepared upon release of the subdivided work descriptions are used to prepare tool lists for manufacturing, quality assurance, and engineering. From these plans a special tooling breakdown is prepared by tool engineering, which defines those tools to be procured and the material requirements of tools to be fabricated in-house. These items are priced by cost element for input on the planning charts.

The materials/support costs are submitted by month for each month of the program. If long-lead funding of materials is anticipated, then they should be as-

Material Planning Flow
Figure 14-6. Material planning flow chart.
Figure 14-7. Procurement activity.

signed to the first month of the program. In addition, an escalation factor for costs of materials/suppoi items must be applied to all materials/support costs. Some vendors may provide fixed prices over tim periods in excess of a twelve-month period. As an example, vendor Z may quote a firm-fixed price oi $130.50 per unit for 650 units to be delivered over the next eighteen months if the order is placed wit! sixty days. There are additional factors that influence the cost of materials.

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