Practical Applications of Target Costing in a Multidisciplinary R&D Project

Abstract

R&D requires expertise in the basic sciences, technical and technological knowledge, legal regulations and business, it seems necessary to enhance collaboration between researchers and businesses, especially small and medium-sized enterprises. In this paper, we present a case study of a collaboration between a university and a company in the implementation of R&D projects. The primary research methods used in this study comprised literature analysis, case study analysis, participant observation, direct observation, deductive reasoning, and the authors’ experience with prototype interview design, including telephone interviews (quantitative survey) and interviews with market experts and/or individuals responsible for specific processes in diagnostic and testing laboratories. The calculations presented for studied projects showed a large disproportion between the costs incurred for the production of prototypes and the selling price accepted by the market. However, this does not preclude profitability. Further analysis of the technological processes, materials, components, etc. should be carried out in order to point out the optimization measures and consequently to achieve the target profitability of the product. Conducting R&D works should take into account the task of commercialization. The use of the concept of target costing facilitates the initial assessment of project profitability and should be recommended when conducting R&D, especially at higher stages of technological readiness of the product. Projects involving a higher level of technological readiness should be carried out not only by people representing life sciences, technology, medicine, etc., but also by specialists in social sciences (e.g., accountants and marketing specialists).

1. Introduction

More than a decade ago, the world economy plunged into stagnation following the financial crisis of 2008. Since then, governments have implemented a variety of programs to stimulate faster and more sustainable growth, such as the EU program “Europe 2020” with an emphasis on increased spending on R&D. In Poland, however, spending on R&D in 2008 was under 1% of gross domestic product (GDP), compared to over 3% of GDP in Sweden and Germany, and the European average above 2% of GDP. Although Poland has seen some progress since then, reaching 1.5% of GDP, it is still far from satisfactory [1], especially when we consider their spending per capita is 10 times lower than Denmark, Germany, Austria and the USA. The roughly 6000 enterprises and institutions involved in R&D in Poland are mainly large companies (with more than 250 employees) or universities (basic research) [1], and constitute a very small fraction of the 4.6 million registered businesses [2].

What may be the reasons behind problems with increasing spending on R&D? One such is a lack of experience and know-how. As R&D requires expertise in the basic sciences, technical and technological knowledge, legal regulations and business, it seems necessary to enhance collaboration between researchers and businesses, especially small and medium-sized enterprises—something that is still lacking in Polish universities. In this paper, we present a case study of a collaboration between a university and a company in the implementation of R&D projects. We also show research on the market demand for products created in the projects, and target costing—a tool supporting the control of product costs at the design stage. Although there are many instruments concerning strategic cost management, for example, value chain costing, cost drivers analysis, activity-based management, life cycle costing, and customer account profitability [3,4,5], the concept of target costing seems to encompass most of the assumptions of the other concepts and is particularly useful at the product design stage. It allows one to:

(1) describe, analyze and optimize the course of pre-production processes;

(2) take into account process optimization ideas of all people involved in the project—engineers, scientists and economists;

(3) examine the market in terms of demand for the product, and at the same time take market requirements into account in designing the product and describing the production technology.

Project management is a group of activities that includes planning, organizing, implementing and controlling tasks necessary to achieve the objectives of a project. Its implementation not only depends on the intellectual value but also on financing and possible commercialization—a process related to launching a product on the market, preceded by various stages of research and development. At each stage of technological readiness of the product, the market should be examined in terms of the demand for a given product, taking into account its usefulness for customers and the acceptable price. One cannot also forget about the profitability of the product, determined by appropriate cost management at the stages of design, manufacturing and sales. The commercialization of the product then requires the calculation of costs in the stages of research and design. This is in line with Kisielnicki’s [6] that innovation projects, regardless of their scope, include a set of mutually integrated scientific, research, technological, organizational, economic and financial activities.

One of the most important works on a project is preparing its budget (cost estimate). Basically, the costing of a project depends on many factors, namely the type of project, the competence of the cost estimator, and the degree of detail of the calculations (indicative cost estimate, comparative estimation, feasibility estimate, final costing) [7]. From the project point of view, the cost estimate is a tool that determines the subsequent profitability of the project, the reasonableness of costs in relation to the possibility of achieving the objectives set, and also indicating the expertise knowledge of the cost estimator in the implementation of the project. It is worth emphasizing that costs in research projects are mainly related to the research itself, regardless of the final result. Since the main objective here is to verify the scientific hypotheses, there is no concern for profitability in the business sense. However, in R&D projects bridging the world of science and business, the project cost estimate is more influenced by the project risk. Therefore, an important element of costing in such projects is to use tools that allow cost optimization and that present a solution that has a chance to ultimately hit the market. Scientific approaches in the search for innovation are often associated with overlooking the aspect of profitability and marketability. It seems that a factor in increasing the chances of implementing innovative solutions in R&D projects is the implementation of business practice costing tools. An optimal solution appears to be the non-statistical approach and adaptive-dynamic character of the target costing concept.

Target costing (TC) was first invented in Japan in the 1960s (known there as “genka kikaku”). It was first applied in 1965 by Toyota. It has been widely used and promoted as a response to structural changes in the production environment, thereby reducing costs and maintaining profitability. Traditionally, cost-reduction and cost-control activities had focused mainly on the production stage, rather than on product design and development [8]. In the 1970s, this new type of cost accounting was implemented in more Japanese companies. Its importance gradually expanded and in the 1980s it was given a strategic dimension. The characteristics of TC that are derived from the definitions presented are customer orientation, the decisive importance of the product design stage, interdisciplinary nature, orientation on the future, and cost analysis throughout the product life cycle. There are two basic stages in target costing: the concept stage and the implementation stage. The concept stage involves determining an acceptable target cost, i.e., the difference between the price customers are willing to pay for a product that meets their expectations and the profit expected by the company [9,10,11].

Research on target costing (TC) has been presented in a number of papers [12,13,14,15,16,17,18,19,20,21,22,23,24,25,26,27,28,29,30,31,32]. According to some definitions, TC is a method of strategic cost management and product development management [9]. This is supported by Cooper & Slagmulder [10], who define TC as “a structured approach to determine the cost at which a proposed product with specified functionality and quality must be produced to generate the desired level of profitability over its life cycle when sold at its anticipated selling price” [10]. It should be clearly emphasized that the subsequent cost of production is determined in the design stage(s) of the product, and determines the subsequent cost of manufacturing [33]. The main idea of the TC system is to determine the target cost of the product as early as the design stage, well before manufacturing. In manufacturing companies, the most important benefit of TC is to help companies to create trade-offs between cost, quality and functionality [34,35,36]. The application of the TC method is supported by the fact that about 70−95% of the product costs are determined by choices made in the design stage [7,37]. In contrast, a study conducted by the Consortium for Advanced Manufacturing International in 1999 to determine TC best practices among U.S. companies, shows different TC principles than those commonly used by Japanese companies [38]. The study found that many U.S. companies interpreted some aspects of TC differently, in particular Design to Cost and Design to Manufacturability in setting the steps of TC adoption. A slightly different application of TC has been used in Chinese industry, where most Chinese companies have adopted TC in general to improve organizational performance [39]. Hamood et al. [11] following Duh et al. [39] indicate that management accounting practices are influenced by a variety of environmental conditions and organizational factors such as competition, strategy and industry. For the success of TC adoption, companies should attach great importance to influential factors related to product development strategy and customer expectations, through market research processes. This is to find product features in terms of price, quality, functionality and timeliness, which are the core elements of the TC process. According to Swenson et al. [38], organizations should assess three areas to determine their readiness to implement TC. These comprise: (1) the organization’s culture and infrastructure, (2) TC principles, and (3) the procedures and tools needed to support TC implementation.

TC facilitates responding to structural changes in the production environment (shaping downstream and upstream processes), enhancing cost reductions and achieving profitability. TC should be used at the pre-production stage, especially in the design stage [11,35,40]. This approach to the implementation of R&D projects improves the compatibility of the design cost estimate with the as-built cost estimate. However, it is important to note that the main problem with this is the components used in the cost estimation of new products. There have been many attempts in TC literature to detail the factors that can affect TC utilization. Generally, these include environmental and organizational factors such as competitive intensity, perceived environmental uncertainty, organization size, national culture and competitive environment, and strategy [11,27,29,34,36]. Despite the numerous works on TC, it is difficult to find studies that address the problems of using this tool in R&D projects carried out by researchers representing different and often distant scientific disciplines and thus the non-business environment.

This paper presents a case study of the launch of an innovative product on the market, discussing selected solutions that relate to the product development process and which need to reconcile cost optimization activities with high product quality, end-customer satisfaction and analysis of market capacity for the product, including the demand resulting from socio-economic changes [10,35,40]. All these aspects require a comprehensive approach and a continuous search for optimal solutions. Finally, the key factor is the demand for the product and the determination of the target price that the final customers are prepared to pay [7,17,37]. At the pre-production stage, a number of tools and techniques may be used, for example value engineering (analysis) (VE), quality function deployment (QFD), design for manufacturing and assembly (DFMA) concepts [10,11,35,40]. These techniques, however, seem more difficult to apply at the design stage of an R&D project, or earlier than level 4 of technological readiness. In such a situation, the application of TC tools according to the kaizen concept increases the chance of leading the solution to commercialization.

2. Materials and Methods

The primary research methods used in this study comprised literature analysis, case study analysis, participant observation, direct observation, deductive reasoning, and the authors’ experience with prototype interview design, including telephone interviews (quantitative survey) and interviews with market experts and/or individuals responsible for specific processes in diagnostic and testing laboratories.

The subject of the research is two R&D projects carried out by a combined team from the University of Szczecin and the Gdansk University of Technology—“The Container for secured transport of biological material” (CBM) and “Mobile sterilization station” (MSS). The characteristics of the projects are presented in

Table 1. Project characteristics (source: own elaboration).

Criterion	Project CBM	Project MSS
General assumptions	The aim of the project was to verify under conditions of usability the performance of a safe infectious material transporter dedicated to SARS-CoV-2 virus diagnostics. The final result of the project is the preparation of a prototype transporter for semi-industrial production.	A mobile sterilization station is a device that enables sterilization of personal protective equipment, parts of office equipment, teaching aids and sports equipment, used repeatedly both in hospitals and places of increased demand (stationary units and field checkpoints of uniformed services, e.g., the police, fire brigade, municipal police) or places particularly exposed to the spread of the SARS-CoV-2 virus (public space, including schools, gyms, swimming pools, hotels and boarding houses).
Scope of R&D work	correctly introduced and verified ergonomics of the product use adjustment of the project to the requirements of production technology preparation of prototypes for testing optimization activities andon-site test results	optimization of prototype design microbiological verification and optimization of the sterilization process design of the controller and software for the prototype modification of the prototype based on user comments, and re-validation of the sterilization process efficiency.
Initial TRL	6	5
Final TRL	8	8
Production technology	Semi-industrial	On request
End-product characteristics	The final product is a disposable creation	Final product configurable to customer needs

TRL—Technology Readiness Level.

.

Both projects, upon completion, have been classified at the 8th Technology Readiness Level (TRL) [41]. TRL 8 means that it has been confirmed that the technology can be used in its final form, under the expected conditions. Examples of technology readiness at this level include testing, validation and evaluation of the technology under conditions intended for its use to confirm the design intent. Practically, in almost all cases, this level represents the end of actual technology development [42,43]. However, a question arises whether that level of technological development is sufficient to commence commercialization. In order to answer this question, it is necessary to study the market and to assess the profitability of the product.

A survey method was used in the research aimed at potential users of the developed solutions. The questionnaire comprised closed questions scored on a scale from 1 to 5 allowing an assessment of the performance and usefulness of the solutions tested by the users, and questions allowing an examination of the market demand and the price accepted by a recipient of the final product. The characteristics of the respondents are presented in

Table 2. Characteristics of respondents (source: own elaboration).

Specification	Project CBM	Project MSS
Number of respondents	104	34
Number of women	84	7
Age of respondents [years]	42 (23–65)	32 (22–53)
Education level -higher	90	17
mean	14	15
primary	0	2

For age, the median (min–max) is presented.

.

Based on accumulated accounting evidence, an as-built cost estimate was created to determine the cost account, which can be referred to as the current cost. A target price expected by the market was used for benchmarking, and actions to achieve the target cost were indicated.

The analysis of project risk was presented on the basis of assumptions by the Project Management Institute (PMI), taking the definition of risk as “a difficult to predict event which significantly affects one or more objectives of the project, for example, quality, cost or time” [44]. Some identified operational project risks are illustrated in

Table 3. Identified operational risks of projects (source: own elaboration).

Project CBM

Project MSS

insufficient number of respondents to conduct focus groups—low risk, technological problem with semi-industrial production (filling of conveyor chambers)—low risk, problem with product tightness due to the introduction of new production technology—moderate risk, problem of finding a subcontractor capable of industrial production of the product—moderate risk, unfulfilled user comments from the test stage (some of the comments may not be technologically implementable)—moderate risk, too high production costs vs. expectations of potential customers—moderate risk, problems with developing a marketing and business strategy in a strongly changing economic environment (demand and supply shocks caused by the pandemic)—moderate risk, total and prolonged lockdown, with a ban on movement and collective quarantine (moderate risk), phasing out of RT-qPCR tests in favor of antigen tests (low risk), withdrawal of the testing unit from the project (very low risk), the product will not meet expectations and requirements related to the work flow principle in a given medical unit due to technological or budget limitations (low risk).

due to the pandemic, difficulty in obtaining all the components and intermediates needed to build an improved prototype, and the need to use substitutes—low risk, problem with correct operation of software—may require modification and improvement—low risk, too high influence of ambient conditions on process repeatability (ambient temperature, humidity)—low risk, recommended internal quality control kits may not be available in the market due to high pandemic demand—moderate risk, necessity of introducing modifications in the control software to improve sterilization parameters—low risk, too high production costs vs. expectations of potential customers—moderate risk, problems with developing a marketing and business strategy in a strongly changing economic environment (demand and supply shocks caused by the pandemic)—moderate risk, risk of withdrawal of testing units—low risk, sudden increase in the costs of necessary components and semi-finished products to manufacture a mobile sterilization station leading to an increase in the production price of the device in a manner unacceptable to the market of potential buyers—moderate risk, Problem with starting up the device and carrying out the sterilization process by potential users due to misunderstanding the guidelines presented in the instruction manual or during training—low risk.

. The aim of the conducted analysis was to manage risk in the project undertakings and to identify the sources, determine possible areas of occurrence, and evaluate the types of risk to which it is exposed, and develop appropriate strategies to secure the discovered risks [45]. Literature presents a variety of criteria for project risk classification, as summarized in

Table 4. Project risk classification (source: based on PMBOK Guide, Fourth Edition, Project Management Institute, Warsaw 2009).

Technological	External	Organizational	Project Management
requirements technologies complexity of linkages performance and reliability quality	subcontractors and suppliers law & regulations marketplace customers weather	complexity of the project resources funding	estimation planning control communication

[46,47,48].

3. Results and Discussion

3.1. Design Risk

Design risks were analyzed in the projects, as summarized in Table 3. It should be noted that the identified risks influenced the design and the project costing. Considering the fact that these risks were related to progressing the products to TLR level 8, they affected the price of the prototype, which due to the low probability of some risks, does not necessarily affect all the costs in the final product.

3.2. Survey Results

The products of both projects were initially evaluated by potential users, e.g., paramedics, firefighters and researchers. In the case of the mobile sterilization station, the evaluations are presented in

Table 5. Evaluation of the mobile sterilization station (rating scale 1–5).

Evaluation Criterion	Average Rating	Dominant	Range of Evaluation
Quality	4.12	4	1–5
Aesthetics	4.14	4	1–5
Size (dimensions)	3.15	4	1–5
Shape	3.85	4	2–5
Ease of use	4.03	4, 5 (13 each)	2–5
Easy to transport	2.76	2	1–5
Clear operating instructions	4.29	4	3–5
Easy replacement of spare parts	3.65	4	2–5
Intuitive use	4.21	5	3–5
Intuitive application handling	4.53	5	4–5
Easy to follow sterilization steps	4.41	5	3–5
Sterilization time	3.85	5	2–5
Readability of the control module (contrast, font size, readability of graphics)	4.26	5	2–5
Potential use in the workplace of the respondent	4.09	5	1–5
Price in €	2 700	1080	650–10 800

(data based on 34 surveys).

Open-ended questions were also asked (number of surveys 34):

• Need to use mobile sterilization station—24 positive ratings;
• Increased work safety due to use of the device—26 positive ratings;
• The device received 23 positive ratings from other users.

For the evaluation of the safe infectious material transporter, 51 questionnaires were received, the results of which are shown in

Table 6. Evaluation of the safe infectious material transporter (rating scale 1–5).

Evaluation Criterion	Average Rating	Dominant	Range of Evaluation
Quality	4.4	4	3–5
Aesthetics	4.58	5	3–5
Dimensions (size)	4.16	5	1–5
Shape	4.65	5	2–5
Ease of use	4.58	5	2–5
Reusable	4.64	5	3–5
Ease of sample marking	4.52	5	3–5
Ease of sample registration	4.45	5	3–5
Quality of maintenance of technical conditions	4.04	5	2–5
Collective packaging	3.78	5	1–5
Ergonomic adapters for different types of swabs	4.10	4	1–5
Label colours	4.60	5	3–5
The need for solutions for medical analysis laboratories and point of care	4.08	5	2–5
Degree of satisfaction with current packaging used for transporting material	3.52	4	1–5
Overall assessment	4.38	4	3–5
Price in €	4.86	2.16–4.32	0.65–32.4

.

Open-ended questions were also asked (number of surveys 51):

• Need for the use of a secure infectious material transporter—43 positive ratings;
• Improved safety of transport of infectious material—42 positive assessments;
• Innovativeness compared to current solutions—34 positive marks;
• Recommendation of the transporter by other users—37 positive ratings.

Of course, these are preliminary studies related to the evaluation of usability, quality and target price, and show the preferences of potential users and the preliminary evidence of market demand for these products.

3.3. Cost Calculation for the CBM and MSS Prototypes

Carrying out cost calculations at each level of technological readiness of the product creates opportunities for cost optimization, assuming that its quality parameters are maintained. The potential proposals for a reduction in costs include the optimization of raw material prices, the use of economies of scale (greater number of manufactured and sold products—lower unit cost), automation of the manufacturing process, etc.

The manufacture of CBM consists of the following stages, namely:

• Stage one—preparation of the CBM elements, i.e., body, nut and gasket.
• Stage two—sealing of the bodies.
• Stage three—filling of the chambers. There are free spaces (chambers) in the body, which must be filled in order for CBM to have proper properties.
• Final stage—labelling of the CBM and its packaging.

Leaving aside the detailed characteristics of the production process of the prototype, it should be pointed out that they were manufactured in two technologies—3D printing and injection moulding. The cost structure of manufacturing one CBM is presented in

Table 7. Structure of production cost of CBM.

Calculation Item	3D Technology (€/Piece)	Injection Molding Technology (€/Piece)
1. Direct materials	11.77%	4.44%
2. Processing costs:
(a) Cost of components manufactured by an external contractor	83.98%	92.34%
(b) Costs of assembling the elements	4.25%	3.22%
Total	100%	100%

. In the table, the value of costs is not given due to the incomparability of prices resulting from the Polish currency. It is worth emphasizing that all calculations are supported by accounting evidence and their reliability was verified by an auditor.

In the case of the mobile sterilization station (MSS), the manufacturing cost structure is shown in

Table 8. Breakdown of the MSS manufacturing costs.

Type of Cost	Version 2.0	Version 3.0
Design	9.22%	11.63%
2. Materials, components	58.05%	20.36%
3. Outside services	18.45%	58.66%
4. Station assembly and software	3.71%	3.74%
5. Testing	10.57%	5.61%
Total	100%	100%

. The stages of the technological process consist of:

(1)

station design,

(2)

purchase of materials and components,

(3)

manufacture of the station structure,

(4)

installation of components and software,

(5)

station testing.

A separate pool of costs are those from industrial property protection, attestation and certification, incurred on a one-off basis. These costs have not been included in the cost estimation.

To determine the full unit cost, the unit manufacturing costs should be increased by mark-ups associated with:

(a)

cost of sales

(b)

general administrative expenses as a result of the enterprise’s strategy.

A comparison of the acceptable market price with the current product production costs is the criterion for deciding on further improvements to the product and taking action to ensure the profitability of the product. In the case of the analyzed projects, comparing the prototype manufacturing cost with the average market price from the preliminary market research shows that, unfortunately, the costs exceed the selling price several times (CBM—3D technology—3.11 times, CBM—injection molding technology—4.10 times, MSS—version 2.0–3.48 times, MSS—version 3.0–3.45 times). Of course, setting the level of the selling price (target price) should also be determined after analyzing similar competitive products. Such an analysis also points out the features and characteristics of the designed product that distinguish it, by which a competitive advantage can be gained.

Gathering sufficient information to assess the benefits of R&D is difficult due to the large uncertainties involved. Three key factors can be identified from which an analysis will reduce this uncertainty, namely risk, market acceptance and planned profitability (sales prices, manufacturing costs). These elements have been applied to the two studied projects.

People implementing such projects pay more attention to the purpose of the project and budget constraints resulting from the cost estimate than to the risks associated with costs crucial for the commercialization of the product. Therefore, the target costing should be used at the design stage in order to reduce the project risk, as well as technological and financial risks.

Target costing consists of the following main steps:

• market research—analysis of the market and competition, customer preference analysis, determining the required quality, functionality, and target price of the product
• costing—assumption of target profit, calculation of allowable cost and current cost, determination of target cost
• product value analysis—reducing the current cost, achieving target cost [16,17,21,22,23,24,25,26,30,33,49].

The first two stages are included in the implementation of the two studied projects. The third stage is an analysis of the product value and the reduction of current costs. As can be seen from Table 7 and Table 8, the cost structure is dominated by the material costs or costs of external services. It should be emphasized that the costs incurred in the project stage are often determined by a project cost estimate. If the cost estimate includes a large amount for this purpose, there is a high probability that these costs will be high. This is due to the fact that in the selection of the service contractor, no further cost optimization activities will be undertaken if the project manager has project funds for this purpose and the level of these funds is accepted by the financing institution. If the financial means were limited, it would probably induce the project manager to look for other less costly methods connected with the production of the product.

As examples of the use of target costing in the analyzed projects we can indicate:

• a precise description of the manufacturing technology of the product, including the processes implemented and the sequence in which they occur,
• a division of the processes into research works (searching for solutions) and development works (improving a product), which slowly helps to determine the processes influencing the later manufacturing cost,
• the identified processes should be divided into those that increase the product utility value and the “project- implementation-related” processes, but do not contribute to the product manufacture and thus are not significant for its manufacturing costs,
• costs connected with processes increasing the product utility value are subject to further analysis using the target costing concept or other cost management concepts, e.g., activity-based costing.

Therefore, it is necessary to develop a procedure to reduce running costs. To this end, an analysis of the processes involved in the manufacture of a prototype should be carried out. It is postulated to divide them into:

(1)

processes related to research,

(2)

processes involved in development and prototype production:

(a)

project-related processes with no impact on manufacturing cost

(b)

processes involved in producing a prototype:

• increasing the utility value of the product,
• not increasing the utility value of the product.

Target costing is the effort incurred in the product planning and development stages to achieve the target cost set by the managers [19]. For example, the manufacture of a CBM consists of the following stages: stage 1—preparation of CBM components, i.e., body, nut and gasket; stage 2—sealing of bodies; stage 3—filling of chambers; stage 4—product labeling and packaging. The first three stages increase the value of the product, while the last stage does not increase the value. When analyzing the processes, one should answer questions about: the duration of the process, the technology and automation of manufacturing, and the materials used. Using alternatives, the level of costs and possible cost reduction can be assessed.

It is therefore worthwhile to apply functional cost analysis (FCA), a cost management technique derived from a value analysis or value engineering. It involves a team approach that allows an organization to draw on the skills of different business disciplines and the knowledge of engineers to make reductions in established target costs [8]. A cost estimate was prepared for the prototypes analyzed in the article, an excerpt of which is included in

Table 9. Direct materials costs per 1 CBM.

Material Cost	Current Cost in €/Unit	Assumed Target Cost in €/Unit
Stage 1—preparing CBM elements
Materials for manufacturing components	0.87	0.74
Stage 2—sealing of bodies
2. Materials for sealing	0.08	0.06
3. Disposal of sealing materials	0.06	0.04
Stage 3—filling the chambers
4. Mixture (activated carbon + silica gel) for filling the chambers	0.06	0.04
5. Refrigerant for filling the chambers	0.01	0.01
6. Gasket	0.08	0.06
Stage 4—product marking and labeling
7. Stickers	0.17	0.11
8. Shipping carton with wrapping	0.06	0.04
9. Total cost of materials	1.39	1.06

.

Table 9 shows that a cost reduction of 0.33 €/unit is required. Accordingly, it is necessary to integrate material sourcing to obtain lower purchase prices for materials, as well as engineers for identifying alternative manufacturing technologies, requiring different types of materials, in order to reduce costs and achieve the target cost. It is worth noting that the cost estimate for CBM was developed in two technologies, which affects the different level of costs. The first technology had a cost of 19.68 €/unit, while the second technology had a cost of 14.91 €/unit, representing a cost reduction of 24.23%.

For MSS, the technological process includes the following stages:

(1)

designing the station,

(2)

purchase of materials and components,

(3)

manufacture of the station’s structure,

(4)

installation of components and software,

(5)

testing the station

The costs are presented in

Table 10. Costs of MSS manufacture.

Type of Cost	Current Cost €/Unit	Assumed Target Cost €/Unit
Design	691.12	531.91
2. Purchase of materials and components	4352.25	3191.49
3. Manufacture of the station’s structure	1392.98	1063.83
4. Installation of components and software	277.34	212.76
5. Testing the station	161.61	106.38
6. Total	6875.30	5106.37

.

From Table 10, it can be seen that a cost reduction of 1768.93 €, or 25.73%, is required. Particular attention should be paid to the cost of purchasing components and costs associated with the manufacture of the station.

From this, it is necessary to develop a procedure to reduce the running costs A, as illustrated in Table 9. The table presents the classification of processes to which the costs from the as-built cost estimate should be assigned. This will be the material for further work connected with the achievement of the target cost. However, due to the sensitivity of the data and the complexity of the technology, a description of the detailed activities of the project team in this regard is omitted from the study, although we do present a general concept for further proceedings.

4. Conclusions

The considerations presented prove that conducting R&D, especially at more advanced levels of technological readiness of a product, should take into account the possibility of commercialization. Therefore, in the search for new innovative products, it is worth using management accounting tools. In this regard, a helpful concept is target cost accounting, which promotes an initial assessment of project profitability and should be recommended when conducting R&D work, especially at higher stages of technological readiness of the product.

The calculations presented for CBM and MSS show that there is a large disparity between the costs incurred for the production of prototypes and the market-acceptable price of sale. While this does not prejudge the impossibility of profitability, further analysis of the technological process, consumed materials, components, etc. should be carried out in order to point out optimization measures and, consequently, achieve the target profitability of the product, which was also applied in the design of CBM and MSS. Of particular note, at this stage is the analysis of opportunities to reduce costs associated with the supply of raw materials and other materials for the manufacture of prototypes.

Projects assuming a higher level of technological readiness should be carried out not only by people representing the sciences, including life sciences, technical sciences, medical sciences, etc., but also by specialists in the social sciences (economists, accountants, marketing and management people), as it was done in the design and manufacture of the CBM and MSS prototypes. Once a decision has been made to manufacture a product, it is worth recommending the use of continuous improvement costing (kaizen costing), which is an approach that takes into account continuous improvements in products, manufacturing processes, etc. The goal of kaizen costing is to improve manufacturing processes through activities aimed at increasing operations.

The completed CBM and MSS projects for which the TC concept was used also demonstrated the importance of this concept for the project finance unit. Ongoing control of project costs using the TC concept allows them to be incurred rationally.

5. Limitation of the Study

The primary limitations associated with costing in the aforementioned cases include: (i) Poor knowledge of the available suppliers of the needed raw materials due to the innovative nature of the prototypes and the interruption of the supply chain during the COVID-19 pandemic. This often resulted in the inability to negotiate purchase prices for raw materials. (ii) Short project lead times (3 months from TRL1 to TRL4/5 and 6 months from TRL4/5 to TRL8/9), determined by the requirements of the funding institution, which also affected the ability to seek optimal quality and price of raw material supplies. (iii) Small quantities of produced prototypes, which increased unit costs due to the fixed costs.

6. Patents

The mobile sterilization station is patent pending No. W.130269 [WIPO ST 10/C PL130269U] while the container for secured transport of biological material is patent pending No. WIPO ST 10/C PL434139 and PCT/IB2021/051736.