# How Traditional Costing Methods Hinder the Development of Modular Product Architectures
## 3 Literature Review
### Methods for Allocation of Costs Related to Product Variety
[46], who built a list of variety-induced complexity cost factors (VCCFs) from the literature, providing the means to identify and quantify the cost of product complexity in a specific process step. The resulting variety-induced complexity cost can be allocated to specific product variants based on the VCCFs and will vary depending on the product [46]. This enables a more precise evaluation of the profitability of each product variant within the portfolio. Although the availability of the methods mentioned above improves cost transparency, they do not support the separation of various cost elements at a lower level than the product variant level [47]. This can distort a quantitative assessment of products if the design principles are anything other than standardization or unique to one product. For example, modular product structures, component commonality, and product platforms rely heavily on sharing modules and components across the product portfolio [5; 9]. Additionally, the most accurate costing methods are too narrowly scoped due to their extensive resource requirements, which limit their ability to provide an accurate cost estimate. This, in turn, means that none of the existing costing methods fully capture the entire value chain or account for the effects between different life-cycle phases [10]. This aligns with the rationale of [PERSON] and [PERSON] [48] and their classification of cost management methods in product development. Aside from component commonality, modular design, and product platforms, existing cost management approaches are limited in scope. They either concentrate on the entire life-cycle cost of a single product or assess an entire product family or portfolio, but only in terms of direct manufacturing costs. Most critically, they fail to account for indirect costs, leaving a significant gap in the cost evaluation and support of decision-making in product development [20; 48]. \begin{table}
\begin{tabular}{l l} \hline \hline
**Cost Allocation Methods** & **References** \\ \hline Volume-Based Costing & [PERSON] et al. [37]; [PERSON] [38] \\ Activity-Based Costing (ABC) & [PERSON] et al. [37]; [PERSON] and [PERSON] [40] \\ Time-Driven ABC (TDABC) & [PERSON] and [PERSON] [43] \\ Target Costing (TC) & [PERSON] et al. [7]; [PERSON] and [PERSON] [17] \\ \hline \hline \end{tabular}
\end{table} 
Table 1: An overview of various costing methods for allocating costs related to product variety with references discussed in this section. Currently, no generalizable methods exist for combining a complete product portfolio with the entire life-cycle cost [6; 48]. And no existing cost system can accurately allocate the entire cost across a portfolio of products [20]. The known costing methods only give a limited insight into the allocation of costs for products and services. [PERSON] [27] also describes this, arguing that volume-based costing and ABC either lack accuracy or require ample resources, respectively. However, several researchers have investigated the economic benefits of modularization in an attempt to provide product developers with a financial incentive for developing modular product architectures.