# 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. product family design; modularity; life-cycle analysis and design; product development; product platform design; decision support; costing methods +
Footnote †: 2020: _Applied sciences_  
variety. A great part of the benefits of modularization often manifests as reduced indirect costs [9; 10; 11], which might constitute up to 50% of the total cost in highly specialized products [7; 12]. However, quantitative cost decisions regarding product design are typically based on direct costs alone, overlooking indirect costs, as both fields aim to optimize the cost or profit of product portfolios based on an economic rationale [10; 13]. This oversight leads to suboptimal design solutions due to a non-transparent cost structure throughout the product life-cycle phases (LCPs) [14]. The product LCPs can be defined as encompassing all operations within the company that are directly influenced by product-related choices [15]. Hence, the lack of comprehensive cost knowledge hinders the development of modular product architectures, limited by the traditional costing methods applied in cost management systems [13; 16]. This is illustrated in an empirical example made by [PERSON] & [PERSON] [5] and is further underlined in the study by [PERSON] & [PERSON] [17]. The existing literature presents several methods to address this issue. However, these methods are often too narrowly scoped, resource-intensive, or product-specific, making it challenging to generalize their application [18]. A more generalizable and holistic approach is needed to address this issue comprehensively. This study conducts a literature review that explores the gap between the research fields of Management Accounting (MA) and Innovation and Operations Management (IOM), with an extended focus on the development of modular product architectures in terms of quantifying the economic benefits of the modularity effects used for decision support in product development. Building on the earlier literature reviews that sought to bridge this gap, [PERSON] & [PERSON] highlighted the practical challenges in accurately allocating costs to modular product architectures within accounting systems [5]. [PERSON] et al. provided an overview of the cost management methods applied during product development [6]. More recently, [PERSON] and [PERSON] concluded that research in this area remains fragmented and proposed a new research agenda with several suggested directions [19].