Cost Objects

Introduction 

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:

  1. Classification of cost (Such as labour, materials and overhead cost).
  2. 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’.

 

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