Cost classification

Cost classification groups costs according to a stated purpose or characteristic. The same cost can be classified by its nature, function, traceability to a cost object, behaviour with activity or relevance to a decision. These dimensions answer different questions and can apply simultaneously. Specify the cost object, activity measure, period and decision where relevant; the name of an expense alone rarely determines every classification. A useful classification supports the intended analysis rather than treating direct, variable and relevant as interchangeable.