A cost object helps to measure and tell users of accounting information about the cost of something. A cost object can include:
- The cost of a product
- The cost of providing a service to customers
- The cost of operating a department
- The cost if resources used
Typically cost is accounted for in two stages:
- Classification of cost (Such as labour, materials and overhead cost).
- Assigning costs to cost objects.
These topics are covered in the next chapter of these notes – ‘Accounting for Costs’.
The most commonly used type of cost object is known as a ‘cost unit’.
A cost unit is an individual unit of product or service for which costs can be separately ascertained.
A cost unit will mean different things to different businesses and it is normally a single unit of what that business produces. For example, a car manufacturer’s cost unit will be a car.
Here are some examples of cost units for some different, typical types of businesses:
- A brewery – barrel of beer
- An accountancy practice – chargeable hour
- A college – a student
- A hospital – a patient
- A hotel – a bed night or room night