How Traditional Costing Methods Hinder the Development of Modular Product Architectures
Abstract
1. Introduction
2. Research Methods
2.1. Literature Study Process
- TITLE-ABS-KEY (“complexity management” OR “complexity costs” OR “quantification of complexity costs” OR “complexity reduction” OR “External Product Vari*” OR “Indirect Cost” OR “variant management” OR “variant cost*”) AND TITLE-ABS-KEY (“product architecture” OR “modular*” OR “data management” OR “MBSE” OR “SysML” OR “KPIs” OR “decision support” OR “product concept evaluation” OR “knowledge management” OR “ design knowledge”)
- TITLE-ABS-KEY (“Cost systems” OR “External Product Vari*” OR “variant cost*” OR “Activity-Based cost*” OR “ABC” OR “Cost Accounting” OR “Cost Allocation”) AND TITLE-ABS-KEY (“product architecture” OR “modular*”)
2.2. Categorization of Assessment Methods for Modularity Effects
3. Literature Review
3.1. The Effects of Product Variety
3.2. Methods for Allocation of Costs Related to Product Variety
3.3. Economic Benefits and Effects of Modular Product Architectures
4. Categorization of Abstraction Levels
4.1. Introducing the Levels of Abstraction
4.2. Findings Following the Categorization of Abstraction Levels
5. Discussion
5.1. Development
5.2. Procurement
5.3. Production
5.4. Sales
5.5. Service
5.6. Summary of Tendencies Observed Across Life-Cycle Phases
6. Conclusions
7. Future Work
- (1)
- Current allocation models must be refined to incorporate more accurate indirect cost allocation throughout the various phases of the product life cycle, particularly for modular product structures. This may require restructuring a company’s internal financial system or implementing an external cost model.
- (2)
- To assess the potential impact of a refined cost allocation model on various types of manufacturing companies, a new costing framework should be developed. The framework should encompass the findings regarding the allocation of product variety costs across different abstraction levels addressed in this paper.
- (3)
- As the first step toward a more generalizable and holistic model, a variety of different manufacturing companies should be included in a case study observing the effects of applying a refined cost allocation model.
Author Contributions
Funding
Institutional Review Board Statement
Informed Consent Statement
Acknowledgments
Conflicts of Interest
References
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Cost Allocation Methods | References |
---|---|
Volume-Based Costing | Horngren et al. [37]; Drury [38] |
Activity-Based Costing (ABC) | Horngren et al. [37]; Cooper and Kaplan [40] |
Time-Driven ABC (TDABC) | Kaplan and Anderson [43] |
Target Costing (TC) | Ehrlenspiel et al. [7]; Stadtherr and Wouters [17] |
Unique-to-One Solution | Modular Solution | |||||||
---|---|---|---|---|---|---|---|---|
Revenue | P1 | P2 | P3 | Sum | P1 | P2 | P3 | Sum |
# of Units Sold | 100 | 80 | 50 | 100 | 80 | 50 | ||
Sales Price | 150 | 200 | 250 | 150 | 200 | 250 | ||
Total Revenue | 15,000 | 16,000 | 12,500 | 43,500 | 15,000 | 16,000 | 12,500 | 43,500 |
Direct Costs (DCs) | ||||||||
Material | 30 | 35 | 40 | 40 | 40 | 40 | ||
Labor | 20 | 20 | 25 | 25 | 25 | 25 | ||
Total DCs | 5000 | 4400 | 3250 | 12,650 | 6400 | 5200 | 3250 | 14,950 |
Indirect Costs (ICs) | ||||||||
Development Cost | 4000 | 4000 | 4000 | 12,000 | 3500 | 3500 | 3500 | 10,500 |
Batch Cost | 50 | 50 | 50 | 40 | 40 | 40 | ||
Total ICs | 9000 | 8000 | 6500 | 23,500 | 7500 | 6700 | 5500 | 19,700 |
Result | ||||||||
Gross Profit | 10,000 | 11,600 | 9250 | 30,850 | 8500 | 10,800 | 9250 | 28,550 |
Profit w. IC | 1000 | 3600 | 2750 | 7.350 | 1000 | 4100 | 3750 | 8850 |
LCP | Modularity Effect | Abstraction Level—#Instances | #Ref | Sources | ||
---|---|---|---|---|---|---|
P | S | C | ||||
Development | Improve outsourcing of development tasks | 2 | 2 | 1 | 4 | [18,73,74,75] |
Improve parallel development/prototyping | 8 | 2 | 8 | [18,50,65,76,77,78,79,80] | ||
Improve adaptability upgradeability | 2 | 3 | [65,81,82] | |||
Improve reliability of product (component reuse) | 6 | 2 | 6 | [18,23,51,52,69,83] | ||
Increase probability of spreading error | 2 | 2 | [18,23] | |||
Decrease in failure rate | 2 | 2 | 4 | [18,23,69,84] | ||
Improve/reduce product innovation | 5 | 1 | 6 | [18,23,65,68,84,85] | ||
Reduce freedom of design/product differentiation | 5 | 1 | 6 | [18,23,29,65,68,85] | ||
Improve variant derivation | 6 | 4 | 6 | [18,51,57,65,69,78] | ||
Increase initial development investment | 5 | 2 | 6 | [18,55,68,69,77,80] | ||
Reduce development cost per unit | 1 | 1 | [10] | |||
Reduce time for part search | 2 | 2 | [18,23] | |||
Reduce documentation and coordination effort | 3 | 3 | [18,23,29] | |||
Improve part administration | 2 | 2 | [18,50] | |||
Increase in volume | 5 | 2 | 6 | [18,59,65,68,82,86] | ||
Increase in weight | 5 | 2 | 6 | [18,59,65,68,82,86] | ||
Increase in no. of unused features | 5 | 3 | 5 | [18,65,68,82,86] | ||
Procurement | Reduce safety stock and inventory levels | 5 | 6 | 9 | 9 | [18,23,59,65,68,70,71,75,87] |
Improve predictability | 5 | 5 | [18,55,68,70,82] | |||
Improve purchasing conditions (economy of scale) | 7 | 7 | [18,50,59,65,68,69,84] | |||
Reduce the number of purchase orders | 4 | 4 | [18,50,65,88] | |||
Improve purchase of prefabricated modules | 1 | 1 | [23] | |||
Reduce no. of suppl./easier suppl. management | 1 | 4 | 5 | [18,23,68,74,89] | ||
Improve repetition rate/less clarification w. supplier | 2 | 2 | [18,23] | |||
Improve dependency on suppl. performance | 2 | 2 | [18,23] | |||
Production | Improve outsourcing of manufacturing tasks | 2 | 2 | 2 | 2 | [18,23] |
Improve parallel testing | 3 | 1 | 4 | [18,23,50,74] | ||
Improve parallel manufacturing processes | 4 | 2 | 6 | [18,23,50,54,65,74] | ||
Reduce time to start production planning | 2 | 2 | [18,23] | |||
Improve production planning and control | 2 | 2 | [18,29] | |||
Improve postponement in production (CODP) | 6 | 1 | 6 | [18,23,53,68,74,78] | ||
Reduce time for failure detection | 3 | 3 | 3 | [18,23,65] | ||
Reduce the number of errors/rework/rejected parts | 6 | 6 | 5 | 7 | [18,23,29,68,69,77] | |
Reduce tool inventory (inventory holding cost) | 6 | 4 | 6 | [18,23,55,57,58,59] | ||
Improve potential for automation | 3 | 3 | [18,23,57] | |||
Improve balance of machine utilization | 3 | 3 | [18,23,57] | |||
Reduce setup changes (setup times/queuing delays) | 3 | 3 | 4 | [18,23,68,72] | ||
Reduce manufacturing cost per unit | 9 | 8 | 9 | 9 | [18,54,55,57,58,59,77,78,88] | |
Improve production flexibility | 2 | 2 | [18,29] | |||
Improve learning curve gradient | 3 | 3 | 6 | 6 | [18,23,65,68,69,77] | |
Sales | Improve time to offer preparation | 2 | 2 | [18,23] | ||
Improve easier price calculation | 1 | 1 | [29] | |||
Improve customer satisfaction | 3 | 3 | [18,23,29] | |||
Improve consumer-based configurability | 3 | 3 | [18,23,65] | |||
Reduce/increase cannibalizing sales | 2 | 2 | 2 | [18,23] | ||
Reduce costs related to training employees | 2 | 2 | [18,23] | |||
Improve responsiveness | 3 | 3 | [18,23] | |||
Reduce exotic product variants | 2 | 2 | [18,23] | |||
Service | Improve the risk of replacement of intact module parts | 2 | 2 | 2 | [18,23] | |
Reduce service, maintenance, and repair costs | 4 | 4 | [18,23,29,65] | |||
Reduce number of stock items (spare parts) | 3 | 3 | [29,65,87] | |||
Reduce the number of specialized tools for repair/service | 2 | 2 | [18,23] | |||
Improve learning curve for training staff | 2 | 2 | [18,23] | |||
Ease of failure diagnosis/reactivity | 2 | 2 | [18,23] | |||
Improve reuse, recycling, and disposal due to dis-ass. effort | 2 | 2 | [23,65] |
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Nørgaard, M.; Grønvald, J.M.; Christensen, C.K.F.; Mortensen, N.H. How Traditional Costing Methods Hinder the Development of Modular Product Architectures. Appl. Sci. 2025, 15, 6307. https://doi.org/10.3390/app15116307
Nørgaard M, Grønvald JM, Christensen CKF, Mortensen NH. How Traditional Costing Methods Hinder the Development of Modular Product Architectures. Applied Sciences. 2025; 15(11):6307. https://doi.org/10.3390/app15116307
Chicago/Turabian StyleNørgaard, Morten, Jakob Meinertz Grønvald, Carsten Keinicke Fjord Christensen, and Niels Henrik Mortensen. 2025. "How Traditional Costing Methods Hinder the Development of Modular Product Architectures" Applied Sciences 15, no. 11: 6307. https://doi.org/10.3390/app15116307
APA StyleNørgaard, M., Grønvald, J. M., Christensen, C. K. F., & Mortensen, N. H. (2025). How Traditional Costing Methods Hinder the Development of Modular Product Architectures. Applied Sciences, 15(11), 6307. https://doi.org/10.3390/app15116307