Activity-Based Cost Management for Design and Development Stage

The fierce global competition in the international markets forces manufacturers to compete in quality, cost, and the time to market aspects of their products. Knowing the cost of the manufactured components is essential for efficient operation and competitive production. The current evolution of competitive manufacturing requires a shorter market life span of products—emphasizing the design and development phase of the product life cycle. Thus, it has become more important to analyze the cost of the design and development phase accurately. Activity-based costing (ABC) has become a mature cost estimation and accounting methodology. Using ABC for cost estimation of manufactured parts is being practiced today with acceptable rate of success. Cost estimation of the design activity on the other hand, has been nebulous and hard to implement. This paper presents a methodology of using ABC to evaluate the cost of the design and development activity for machined parts. The methodology is demonstrated on a sample part being produced in a controlled manufacturing facility