Thursday, April 5, 2012

Concept of Cost Objective


Cost Object: Cost object is anything for which a separate measurement of cost is desired.
Product cost and department cost are two main cost objects or cost objectives. But as a concept cost object can be anyting for which a measurement of cost is desired.
Managers can ask the cost accounting department for cost information that is required for their decision models. Ordering cost, inventory carrying cost, shortage cost etc. are cost information for decision making in  inventory area. Inventory managers or materials managers are justified in asking for these pieces of cost information from the cost accounting department.
Similarly, production management decisions, equipment replacement decisions require cost information for decision making.
There is a possibility that cost accountants do not understand the concepts, that operating managers are using for cost information. But cost accounting texts do use many of these concepts. So basically a coordination is required between the operating department and the cost accounting department to arrive at proper cost information.
A cost system accumulates costs and the assigns them to various cost objects. Information regarding cost objects requires that there is a cost accumulation system designed for providing the required cost information is in place. Activity based costing system can give much more information compared to traditional cost accumulation systems. But operating departments have to provide more information also in Activity based costing system when they are preparing their expense vouchers or material issue slips and similar other documents.

A List of Cost Objectives in Different Disciplines of Management

Materials Management (Inventory Control)

    Ordering Cost
    Inventory Carrying Cost
    Shortage Cost

Production Management

    Set Up cost
    Cost of Quality

Maintenance Management

    Breakdown cost

Human Resources Management

    Cost Absenteeism
    Cost of Ignorance 

Index of articles on Cost Accounting, Costing and Cost Management

OK - 442

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