Cost classification

A business has lots of costs - if they are producing goods there are the costs of the materials, the labour etc., if they are giving a service (like a hotel) then again there are lots of costs (labour, repairs to the building etc). The cost of a manager in the business is one of these costs. A cost object is something they want to allocate these costs to. A production company wants to calculate the cost of producing a unit (so that they can decide on a selling price, so that they can look at reducing costs). A hotel wants to know the cost of dealing with one customer (so that again they can decide how much to charge and can look at ways of reducing costs).