ACCOUNTING FOR COST INTERACTIONS IN DESIGNING PRODUCTS
Advances in Management Accounting
ISBN: 978-0-76231-118-7, eISBN: 978-1-84950-281-8
Publication date: 21 July 2004
Since quality cannot be manufactured or tested into a product but must be designed in, effective product design is a prerequisite for effective manufacturing. However, the concept of effective product design involves a number of complexities. First, product design often overlaps with such design types as engineering design, industrial design and assembly design. Second, while costs are key variables in product design, costing issues often arise that add more complexities to this concept.
The management accounting literature provides activity-based costing (ABC) and target costing techniques to assist product design teams. However, when applied to product design these techniques are often flawed. First, the product “user” and “consumer” are not identical as often assumed in target costing projects, and instead of activities driving up the costs, managers may use budgeted costs to create activities to augment their managerial power by bigger budgets and to protect their subordinates from being laid off. Second, each of the two techniques has a limited costing focus, activity-based costing (ABC) focusing on indirect costs and target costing on unit-level costs. Third, neither technique accounts for resource interactions and cost associations.
This paper applies the new method of associative costing (Bayou & Reinstein, 2000) that does not contain these limitations. To simplify the intricate procedures of this method, the paper outlines and illustrates nine steps and applies them to a hypothetical scenario, a design of a laptop computer intended for the college-student market. This method uses the well-known statistical techniques of clustering, Full Factorial design and analysis-of-variance. It concludes that in product design programs, the design team may need to make tradeoff decisions on a continuum beginning with the design-to-cost point and ending at the cost-to-design extreme, as when the best perceived design and the acceptable cost level of this design are incongruent.
Bayou, M.E. and Reinstein, A. (2004), "ACCOUNTING FOR COST INTERACTIONS IN DESIGNING PRODUCTS", Advances in Management Accounting (Advances in Management Accounting, Vol. 12), Emerald Group Publishing Limited, Bingley, pp. 151-170. https://doi.org/10.1016/S1474-7871(04)12007-8
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