Unit costing in the shipyard environment

Unite costing is the latest initiative to achieve saving in DoD. Shipyards, which operate on a cost per unit system, illustrate the potentials gains and hazards of unit costing. Economic theory is applied to provide a basis of comparison for shipyard operations. Unit cost theory is illustrated along with definitions of controllability, scale and efficiency. A model of shipyard operations is proposed and compared to theory. Questions of output measure and quality are addresses under the model. Dangers of output comparison are illustrated by example. The validity and limits of unit cost theory are established by applying the shipyard model. A practical investigation into the applicability of the unite cost systems to government operations focuses on elasticity, budget variability and performance evaluation. This study concludes that unit costing alone is not sufficient to meet states objectives. Additional incentives and increased autonomy are requires to meet efficiency goals.