ABSTRACT

This chapter discusses the use of product modularity for cost management purposes. It considers the context of firms offering a wide assortment of end products to their customers and which need to manage their costs to be able to offer such diversity efficiently. The chapter looks at various literatures and provides an overview of the current understanding of modularity for cost management purposes. The management accounting literature has mainly addressed the topic of product design and cost management by looking at target costing, and overall, management accounting research and practice have not focused that much on product development. In 2001, Krishnan and Gupta create a mathematical model to examine under which conditions a platform strategy outperforms an individual product development approach. The purpose of modularity in the context of new product development (NPD) and cost management is to coordinate design decisions across a portfolio of related products, in order to provide product variety in an efficient way.