Duncan
WILLIAMSON
Introduction to Management Accounting
Cost Objectives and Units
As we are walking around our factory or office or non profit making organisation, one phrase we will need to use is the cost objective. We need to learn the language of the management accountant and cost objective is a fundamental part of that language.
You will commonly read that the purpose of cost accounting is the cost objective. Additionally, you may read about cost objectives and cost units. A cost unit is a product or service for which we want to find a total cost. In fact, the term cost unit is a synonym for cost object or cost objective. See Williamson page 154
A cost object is any activity for which a separate measurement
of costs is desired … examples … include the cost of a product, the cost
of rendering a service to a bank customer or hospital patient, the cost
of operating a particular department or sales territory, or indeed anything
for which one wants to measure the cost of resources used.
Source: Drury page 21
Some accountants will say that a cost objective is a broad concept and the term cost unit relates to lower level concepts. For example, a cost objective may be to determine the cost of educating a student and the cost unit may be
- cost per student
- cost per student year
- cost of a student module and so on
Whichever definition you decide on, the basic idea is that a cost object or objective relates to the products and processes that an organisation is concerned with and that the management accountant needs to work on.
Exercise 4U: Complete the table below by providing examples in the Cost Unit column of the kinds of cost units that you think the business named in the left hand column would produce or generate
| Business | Cost unit |
| furniture making | |
| telephone manufacture | |
| accountant's advice | |
| word processing service | |
| brewing |
Source: Williamson
Exercise 4U Solution
To see the solution in the table below, once you've had a go at doing it yourself, of course, drag your mouse over the table as you hold down the left hand button to reveal all!
| Business | Cost unit |
| furniture making | tables, chairs |
| telephone manufacture | telephones, cable sockets, extension speakers |
| accountant's advice | chargeable hour, booklets, forms completed, accounts prepared |
| word processing service | pages typed, document prepared |
| brewing | barrel, crate, cans |
Extension As you walk around your own factory or anywhere else for that matter, keep your eyes open so that you can identify the cost units wherever you are: make lists of all of the cost objects you can find.
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Next Organise a Factory Visit and Watch the Television
Previous Solution to Mini Project 1
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Duncan
Williamson
3 March 2003
