Question

Define cost objects and explain why managers of insurance companies might be interested in knowing the costs?

Answer 1

Cost object- Cost object can be a product or department for which cost is measured and assigned. This term is used in cost accounting. It is mainly of three types:

1. Product/Service- This is main output after all the processing so company's product or service is the cost object for raw material, direct labor and manufacturing overhead.
2. Department- Cost object can be within the company, i.e. department, production line, process etc. For example; Factory maintenance department is cost object for cost of maintaining the employees.
3. Outside the company- Sometimes cost object can be outside the company, for example; renewing license.

Managers of insurance companies might be interested in knowing the costs because different type of costs can change the premium of the policies if some policies incur higher costs then the premium will also be higher for the customers.