For merchandising companies, determining the costs of the product, or Cost of Goods Sold (COGS), is fairly simple. If a company purchases a product for $100 and resells it for $200, the cost is $100 to the company. But what about manufacturing companies? Of course part of the cost is the amount the company pays for materials within the product, such as lumber for a desk or leather for a desk chair. But what about the costs of paying those assembling the product, and the cost to run the machine, and the utilities of the factory?

We will spend much of the early part of this course assigning costs to cost objects. Cost objects are simply any items for which costs need to be assigned. This can be as simple as how much an individual product costs to produce, or as complex as how much a department costs to run.