Cost Objectives

Cost Objective is an important concept in cost accounting.

There are three important definitions of cost objectives in the Uniform Guidance at 2 CFR 200.1:

  • "Cost objective means a program, function, activity, award, organizational subdivision, contract, or work unit for which cost data are desired and for which provision is made to accumulate and measure the cost of processes, products, jobs, capital projects, etc. A cost objective may be a major function of the non-Federal entity, a particular service or project, a Federal award, or an indirect (Facilities & Administrative (F&A)) cost activity, as described in subpart E of this part."
  • "Final cost objective means a cost objective which has allocated to it both direct and indirect costs and, in the non-Federal entity's accumulation system, is one of the final accumulation points, such as a particular award, internal project, or other direct activity of a non- Federal entity." and
  • "Intermediate cost objective means a cost objective that is used to accumulate indirect costs or service center costs that are subsequently allocated to one or more indirect cost pools or final cost objectives."

This term cost objective is not unique to the federal assistance environment. Cost accounting developed in the manufacturing world, long before there were nonprofits. Accounting Coach (referenced above) offers a good general introduction to cost accounting from the for-profit perspective. For example, here's their definition of cost object.

An analogy: If you are sorting beans by relative size, and you recognize three distince size ranges for the beans, you might choose three buckets for sorting. You put small beans in Bucket A, medium beans in Bucket B, and large beans in Bucket C.

In this analogy, the beans represent costs, and the buckets represent cost objectives.

Link to the discussion of grant vs. project (revenue source vs. cost objective) at About Expenses

Read more on the topic of cost allocation here: Direct Cost Allocation, Indirect Cost Allocation and Cost Allocation Plans and Rates

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