Cost Allocation in Modular Product Development: Reviewing Existing Practices and Identifying Opportunities

Modular product structures are a proven design method for offering a wide variety of customized products to the market while maintaining a low internal product and process complexity and creating several cost benefits for product manufacturers throughout their value chain. However, the economic benefits of modularity-induced effects have proven challenging to quantify using traditional costing methods. This leaves modular product structures at a disadvantage during the product development phase. Since it comes with a high upfront development cost, the economic benefits gained later are challenging to assess accurately. Effecting the overall product design process. This study aims to provide an overview of the cost-allocating methods currently used to evaluate the economic benefits of modularization. It will examine the existing cost accounting methods for the product life cycle's development phase. It will contribute to a broader understanding of current methods’ capability and enlighten potential issues and opportunities in existing practices. Finally, opportunities for improving existing resource allocation methods, which can potentially refine cost allocation systems, are discussed. This would improve the accuracy and detailing of cost when evaluating product portfolios with highly complex, customized, or modularized products and function as decision support for design engineers when evaluating existing products in the design process.