The idea of cost accounting is to collect, classify, record, and suitably allocate expenditures to determine the costs of products or services. After collecting costs, these are classified to ensure their identification with cost centers or cost units.

Cost classification involves the separation of a group of expenses into different categories. A classification system is used to bring to management's attention certain costs that are considered more crucial than others, or to engage in financial modeling. A proper analysis of cost classifications can result in increased profits.

Cost Classification is the process of segregating the company’s costs into different categories that gives a fair idea to the decision-maker about the spending pattern. This bifurcation allows teams to efficiently use the data for accounting purposes and financial modeling, leading the management to decide which cost is more important than others.

Cost classification is a method of categorizing expenses so they can be effectively communicated on financial reports. Your company incurs all sorts of costs, and showing them in a long list or as a lump sum makes it difficult to understand where your money is really going.

Classification of costs based on behavior helps in cost-volume-profit analysis. Classification based on traceability is important for accurate costing of jobs and units produced. Classification for the purpose of decision-making is important to help management identify costs which are relevant for a decision.