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The essential investments in new product development (NPD) made by industrial companies entail effective management of NPD activities. In this context, performance measurement is one of the means that can be employed in the pursuit of effectiveness.

The purpose of this paper is to describe the interactions between accounting and marketing activities in a Taiwanese telecommunication firm by demonstrating the dramatic impact that improved costing methods had on the firm’s customer portfolio management activities and consequently on the firm’s bottom line.

The paper presents a case study of a firm in the highly competitive telecommunications industry in Taiwan. The case study was constructed by interviewing key individuals within the organization over an extended period and supplementing those reports with an analysis of internal company documents.

The firm dramatically increased profitability through the integration of activity-based costing into their customer portfolio framework requiring marketing and accounting functions to work closely together. In this rapidly evolving market, cost allocation and customer portfolio management are indispensable. Identifying accurate costs and keeping key customers is a critical issue for the case company. While theoretically the approach is simple, in practice considerable hurdles needed to be overcome.

While considerable literature suggests that customer profitability drives the management of an organization’s customer portfolio, critical to the success of such an endeavor is the accurate calculation and allocation of costs to individual customers. As an interdisciplinary study, this paper provides insights for both accounting and marketing highlighting their reliance on each other in a sound firm. The results of this paper will serve as a supplement to past customer portfolio management research as well as a reference for any firm seeking to enhance their approach to portfolio management.

Theeuwes and Adriaansen (1994), among others, have asserted that activity-based costing (ABC) is inappropriate for operational decision-making. In this article, ABC is modified to reflect separate flexible and committed cost driver rates for an activity. This enables the model to reflect the difference in the behavior of an activity’s flexible and committed costs needed for operational planning decisions. The modified ABC facilitates determining the resources required to produce the product mix developed from the firm’s strategic plan and the excess capacity that will result. The modifications made to ABC aid in determining an optimal product mix when the firm has excess capacity, while the traditional ABC may not. Equally important, it facilitates measuring the financial implications of the resource allocation decisions that comprise the firm’s operational plan. As the operational plan is implemented, operational control is used to ensure that it is performed in an efficient and effective manner. The modified ABC enables the firm’s managers to compute the different types of deviations that arise from using flexible and committed resources at the unit, batch, and product levels of the firm’s operations. This aids in understanding problematic aspects of the firm’s operations and identifying where management resources are needed to improve operational efficiency.

This study extends the theoretical analyses of Duration-Based Costing (DBC), an alternative cost measurement system to Activity-Based Costing (ABC). DBC is simpler than ABC and uses the production cycle time to assign costs. This simplicity should allow DBC to be a better costing method for multiproduct firms that exhibit nonconstant returns to scale.

Data simulations for 1,000 cases and Data Envelopment Analysis (DEA) are used to analyze the production functions inside DBC and ABC models to determine their relative technical efficiency.

The results show that, for a given set of simulations, DBC shows more nonconstant returns to scale than does ABC. This corroborates prior research and suggests that a more complex costing system, such as ABC, may not always match the production technology of a multiproduct firm. Thus, DBC may have a higher level of accuracy than does ABC for firms that exhibit nonconstant returns to scale.

Since DBC has only recently been theoretically developed, this study is the first to analyze the relative technical efficiency of DBC compared to ABC.

This study should bring some further awareness of the implications of alternative costing methods. The limitation of DBC is that it does not capture other factors not driven by the production cycle time that could be necessary for management decision making. However, DBC is better for multiproduct firms than a more complicated costing system and does help decision makers determine whether the production process is operating efficiently. It is imperative that firms choose which costing methods fit the firm’s needs and economic structure.

As manufacturers continue to increase their level of automation, the issue of how to allocate machinery costs to products becomes increasingly important to product profitability. If machine costs are allocated to products on a basis that is incongruent with the realities of machine use, then income and product profitability will be distorted. Adding complexity to the dilemma of identifying an appropriate method of allocating machine costs to products is the changing nature of machinery itself. Depreciation concepts were formulated in days when a machine typically automated a single operation on a product. Today’s collections of computer numerically controlled machines can perform a wide variety of operations on products. Different products utilize different machine capabilities which, depending on the function used, put greater or less wear and tear on the equipment. This paper presents a mini-case that requires management accountants to consider alternative machine cost allocation methods. The implementation of an activity-based method allows managers to better match machine cost consumption to products. Better matching of machine costs to products enables better strategic decisions about pricing, mix, customer retention, capacity utilization, and equipment acquisition.

The paper provides an overview of research published in the innovation and operations management (IOM) literature on 15 methods for cost management in new product development, and it provides a comparison to an earlier review of the management accounting (MA) literature (Wouters & Morales, 2014).

This structured literature search covers papers published in 23 journals in IOM in the period 1990–2014.

The search yielded a sample of 208 unique papers with 275 results (one paper could refer to multiple cost management methods). The top 3 methods are modular design, component commonality, and product platforms, with 115 results (42%) together. In the MA literature, these three methods accounted for 29%, but target costing was the most researched cost management method by far (26%). Simulation is the most frequently used research method in the IOM literature, whereas this was averagely used in the MA literature; qualitative studies were the most frequently used research method in the MA literature, whereas this was averagely used in the IOM literature. We found a lot of papers presenting practical approaches or decision models as a further development of a particular cost management method, which is a clear difference from the MA literature.

This review focused on the same cost management methods, and future research could also consider other cost management methods which are likely to be more important in the IOM literature compared to the MA literature. Future research could also investigate innovative cost management practices in more detail through longitudinal case studies.

This review of research on methods for cost management published outside the MA literature provides an overview for MA researchers. It highlights key differences between both literatures in their research of the same cost management methods.

To provide an overview of research published in the management accounting literature on methods for cost management in new product development, such as a target costing, life cycle costing, component commonality, and modular design.

The structured literature search covered papers about 15 different cost management methods published in 40 journals in the period 1990–2013.

The search yielded a sample of 113 different papers. Many contained information about more than one method, and this yielded 149 references to specific methods. The number of references varied strongly per cost management method and per journal. Target costing has received by far the most attention in the publications in our sample; modular design, component commonality, and life cycle costing were ranked second and joint third. Most references were published in Management Science; Management Accounting Research; and Accounting, Organizations and Society. The results were strongly influenced by Management Science and Decision Science, because cost management methods with an engineering background were published above average in these two journals (design for manufacturing, component commonality, modular design, and product platforms) while other topics were published below average in these two journals.

The scope of this review is accounting research. Future work could review the research on cost management methods in new product development published outside accounting.

The paper centers on methods for cost management, which complements reviews that focused on theoretical constructs of management accounting information and its use.

Product mix and the acquisition of the assets needed for their production are interdependent decisions. However, these decisions are frequently evaluated independently of each other and with conceptually different decision models. This article expands activity-based costing (ABC) to incorporate the cost of capital. The resulting model traces the cost of capital to products and thereby measures the economic value added (EVA) from their production. The discounted value of a product’s EVA over its life is equivalent to its net present value (Hartman, 2000; Shrieves & Wachowicz, 2001). The discounted EVA of a product also equals the net present value of the assets used to manufacture the product. Consequently, evaluating products with an ABC model incorporating the cost of capital enables product mix and capital budgeting decisions to be evaluated simultaneously. The article also examines the role of ABC when product mix decisions are made at the product and portfolio levels of the firm’s operations.