How Traditional Costing Methods Hinder the Development of Modular Product Architectures

Abstract

This study investigates how traditional costing methods hinder the development of modular product architectures. A structured literature review identifies the gap between Management Accounting (MA) and Innovation and Operations Management (IOM), revealing that current costing approaches often fail to provide an accurate cost assessment of the impact of modularity effects across the product life cycle. A hypothesis is proposed, suggesting that defining cost allocation by levels of abstraction—product, subsystem, and component—can address the challenges in current methods. The analysis found that modularity effects are predominantly assessed at the product level in four out of five life-cycle phases, despite product costs being incurred at lower levels, leading to inaccuracies in cost allocation. This study concludes that current costing practices do not offer a sufficient level of detail for informed design decisions based on cost when it comes to developing modular product architectures and proposes the development of more refined cost models. It offers a new perspective on how to assess product variety and its related effects in a product portfolio. This lays the foundation for future research combining the fields of MA and IOM. This paper highlights the absence of a universal method to assess the total life-cycle cost of product portfolios and outlines directions for future work, including the development and testing of refined allocation models through industry case studies.

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