An activity-based cost model for design-concurrent calculation

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Virginia Tech

This research develops the concepts as well as a "case study” implementation of a cost model that estimates the costs of product design alternatives during the design process. This cost information, regarding design alternatives, is for decision making purposes. With the help of this cost model, the designer can better approximate that product form which results in the lowest costs of production, i.e., for which the sum of material costs and activity costs are minimized.

The cost model integrates similarity analysis into an enhanced version of an activity-based cost management system. The similarity analysis is required because the details of a product's bill of materials and bill of activities are not yet available during the design process; however, such information provides the basis for any activity-based cost calculation.

In a first step the cost model determines which of the existing products, based upon their cost driving characteristics, belong to the same product family as the design alternative. For these products detailed information is available, thus they can be used as reference products for the similarity analysis. These existing products are calculated as if they were the design alternative, hence they follow the decision costs principle; i.e., costs that will appear in the future but were determined in the past are not relevant for a particular decision. Subsequently, those reference products - as calculated on the basis of decision costs for the respective design - are utilized in a regression analysis. This analysis approximates the functional relationship between the product's cost driving characteristics and its costs, so that, finally, the costs for the design alternative in question can be estimated based on its characteristics.