Certified Aviation Manager (CAM) Practice Test

In budgeting for an aviation department, what is the effect of a chargeback rate that incorporates only direct operating costs?

1. It promotes usage at all levels of the company unless limited by policy

2. It provides an inaccurate measure of overall aircraft costs

3. It discourages use of the aircraft due to high operating expenses

4. It aligns with company policy for maintenance costs

The correct answer is: It promotes usage at all levels of the company unless limited by policy

When budgeting for an aviation department, a chargeback rate that includes only direct operating costs can create an impression of lower overall costs associated with using the aircraft. This encourages departments within the company to utilize the aviation services more liberally, as they may not see the full financial implications of their usage. By focusing solely on direct operating costs, such as fuel, maintenance, and crew salaries, the chargeback does not account for fixed costs or indirect costs associated with owning and operating the aircraft, such as depreciation, insurance, and administrative overhead. As a result, the perception is that utilizing the aircraft is inexpensive, promoting its usage throughout the organization. Thus, this practice can lead to increased flying hours and demand for the aircraft, potentially straining resources if not managed appropriately. The other options do not accurately reflect the implications of limiting the chargeback to only direct costs. For instance, not considering indirect costs may lead to an inaccurate understanding of overall aircraft expenses or discourage usage altogether, contrary to what the correct answer conveys.