Are all costs variable? (Or how to handle fixed costs in unit cost resourcing)

Unit Cost Resourcing (UCR) is a funds control method applied only to selected support functions. Instead of a guaranteed budget level, obligations are limited to a predetermined unit cost target times a defined output. Although a number of implementation policy issues are associated with UCR, one of the most contentious has been the failure to distinguish fixed and variable costs in the setting of unit cost targets. The problems with average unit costing are: 1. unit total costs are too highly aggregated to serve as anything more than a cursory productivity index, 2. Defense Business Operation Fund business areas spread total costs over all goods and services, which assumes that fixed and variable costs are driven by the same causal factors, and 3. there is a real potential for a funding shortfall. Proposed solutions include: 1. revise budgets during the execution year, 2. recognize actual fixed costs, and 3. establish negotiated thresholds.