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The Cost Effects of Component Commonality: A Literature Review Through a Management-Accounting Lens

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  • Eva Labro

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    (Department of Accounting and Finance, London School of Economics, Houghton Street, London WC2A 2AE, United Kingdom)

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    Abstract

    In this paper I review the component commonality literature through a management-accounting lens, focusing on the cost effects of an increase in the use of the same version of a component across multiple products. The bulk of this literature is of a theoretical nature, for example, analytical models, programming models, or conjectures based on casual observations of practice. Some of this literature purports, especially in introductions to the topic, that cost generally decreases with increasing commonality. However, based on a review of the theoretical literature using an activity-based costing framework and distinguishing between cost-driver and cost-rate effects, I conclude that the cost picture is more subtle. In other words, it is too early to make any general statement about the effect of increasing commonality on total costs. Moving to the limited empirical literature on the topic, consisting of case studies (sometimes combined with simulation) and empirical research on larger data sets, the conclusion that there is even more room for future research becomes evident.

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    File URL: http://dx.doi.org/10.1287/msom.1040.0047
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    Bibliographic Info

    Article provided by INFORMS in its journal Manufacturing & Service Operations Management.

    Volume (Year): 6 (2004)
    Issue (Month): 4 (June)
    Pages: 358-367

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    Handle: RePEc:inm:ormsom:v:6:y:2004:i:4:p:358-367

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    Related research

    Keywords: component commonality; unique versus common components; new product development; activity-based costing;

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    Cited by:
    1. Israelsen, Poul & Jørgensen, Brian, 2011. "Decentralizing decision making in modularization strategies: Overcoming barriers from dysfunctional accounting systems," International Journal of Production Economics, Elsevier, vol. 131(2), pages 453-462, June.
    2. Nils Boysen & Armin Scholl, 2008. "A general solution framework for component commonality problems," Jena Research Papers in Business and Economics - Working and Discussion Papers 12/2008, Friedrich-Schiller-University Jena, School of Economics and Business Administration.
    3. Brun, Alessandro & Capra, Eugenio & Miragliotta, Giovanni, 2009. "VRP revisited: The impact of behavioural costs in balancing standardisation and variety," International Journal of Production Economics, Elsevier, vol. 117(1), pages 16-29, January.

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