# How Traditional Costing Methods Hinder the Development of Modular Product Architectures
## 4 Categorization of Abstraction Levels
### Introducing the Levels of Abstraction  
In this study, we seek to investigate the current gap between Management Accounting cost methodologies and the quantification of benefits from modularization effects. The objective is to provide greater insight into why quantifying costs remains a challenge, even when employing comprehensive cost allocation methods such as TDABC. Studies suggest that assessing the economic benefits of modularization, based on the allocation of costs at the product or project level, is not suitable for providing an accurate cost picture [5; 10; 12]. To accurately assess the cost and profitability of related products that share components and subsystems, the entire product portfolio of related products must be considered [20], enabling an aggregated cost evaluation across the product portfolio based on common modules and components [5]. This may be possible by conducting assessments in smaller increments rather than at the product or project level, which can be considered an aggregation of costs related to subsystems and components [17]. This initial insight informs the study's hypothesis. The levels of abstraction are defined based on the product data structure found in Enterprise Resource Planning (ERP) systems, 3D models,and Bill-of-Materials (BOMs), in which the decomposition of a product in a manufacturing company can be found [67]. The hypothesis is that defining abstraction levels based on current product structures may provide a means to address the challenges of accurately allocating indirect product costs throughout the life cycle. The three levels of abstraction are defined as product, subsystem, and component, as visualized in Figure 1. A bicycle is depicted in the figure to provide context. The upper-level, product, consists of finished goods or products that can be sold as a single unit (e.g., a fully finished bicycle) [37]. It will have a unique item or product number for the specific variant sold. In this case, we will denote the bicycles as three product variants: P1, P2, and P3. On the next level, we have subsystems (e.g., the frame of the bike), a term similar to subassembly or module, which are used broadly in the literature and industry [56]. Each subassembly will also have a unique item number. The combinations of subsystems make up a product. In this case, we will denote the three frames depicted as three subsystem variants: S1, S2, and S3. On the lowest level of abstraction, we have components (e.g., frame elements, fork legs, tire, etc.). Each component will have a unique part number. A combination of these comprises the subsystems. A component always consists of only one unit. However, the company determines what a single unit or component is in relation to their product. For example, a rubber tube would often be considered a single component for a bicycle manufacturer, even though it consists of a tube and a tube valve, since it is bought from an external supplier. With this definition in place, we can provide a simple example based on [PERSON] and [PERSON]'s [5] findings, illustrating why this product structuring proves problematic for allocating costs in a modular product structure following traditional costing methods. A bicycle manufacturer intends to expand its bicycle portfolio to target new customer segments. To this end, it will introduce a new product family entailing three new variants (products): P1, P2, and P3. A new bicycle frame (subsystem) must be designed to meet the market's requirements. They can either develop an over-specified frame (SX) to meet the requirements of all three variants, following the principles of modular design, or create a unique-to-one solution for each variant (S1-S3). The first option will introduce only one subsystem variant but will be more expensive than its unique-to-one counterpart in terms of upfront development (10,500 in total) and direct costs, which are expected to increase following this design decision but are not expected to amount to a higher cost than for the most expensive unique-to-one subsystem [9; 18].