Cost Object: Definition & Examples

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  • 0:00 An Unexpected Cost
  • 0:48 Cost Object Definition…
  • 2:57 Lesson Summary
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Lesson Transcript
Instructor: Brianna Whiting

Brianna has a masters of education in educational leadership, a DBA business management, and a BS in animal science.

In this lesson we will explore cost objects. We will define the term and look at some of the different types of cost objects. The lesson will then be concluded with a summary and a quiz.

An Unexpected Cost

For many years, Carl has been operating his own business selling tools. He begins every day with a morning meeting in which all of his managers report on productivity and voice any concerns. However, one morning Carl has a different approach to his meeting. You see, after speaking with the finance department, Carl was informed that a large portion of profits was being used to fix and maintain some of the machines found within the business. So during the morning meeting, Carl decides to ask his managers what they think about the condition of the machines. After countless opinions, Carl realizes that the machines are becoming a reoccurring cost to the business. So much so, in fact, that Carl decides to consider all machine repairs and maintenance a cost object.

Cost Object Definition & Examples

So what exactly is a cost object? Well, when costs are measured for products or a department, you have a cost object. Basically, any item that a company wishes to measure separately is a cost object. Other examples of cost objects include machines, customers, and even employees. A cost object is a major concept employed in a business when managing the costs.

Let's take a look at some of the different types of cost objects. Perhaps the most thought-of cost objects incurred in a business are those related to output. For example, a company may want to know how much money they are spending on supplies and resources needed to produce products. A company may also want to know what they are spending on salaries for their employees who provide services to customers. Each of these is a cost object. Knowing these types of costs helps a business determine profitability and price setting.

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