## Cost Classification — The Big Picture

Costs are not classified for their own sake; they are classified according to the purpose the information will serve. The faculty's framework groups all classifications under three purposes:

```

COST CLASSIFICATION FOR THE PURPOSE OF:

A. STOCK VALUATION & PROFIT COMPUTATION

A1: Expired & Unexpired Cost

A2: Product & Period Cost

A3: Manufacturing, Administrative, Selling & Distribution Costs

A4: Job Cost & Unit Cost

B. DECISION MAKING

B1: Variable, Fixed & Semi-Variable Cost

B2: Sunk Cost

B3: Opportunity Cost

C. CONTROL

C1: Controllable & Non-Controllable Cost

```

### How to use this map

Purpose A (Stock Valuation & Profit Computation): decides which costs sit in closing stock and which hit the P&L this period.
Purpose B (Decision Making): identifies costs that are relevant to a future choice (variable behaviour, sunk costs to ignore, opportunities forgone).
Purpose C (Control): separates costs a manager can influence from those they cannot, so accountability is fair.

> Note: This particular grouping is the faculty's own creative framework to simplify the concepts. It is a learning aid and may not appear in this exact form in the ICAI Study Material — but the individual classifications themselves are all examinable.

Worked example

### Example 1

Same cost, different lens: Factory rent of ₹50,000.

Under A (stock valuation): it is a manufacturing/product cost absorbed into the value of goods produced.
Under B (decision making): for a short-term special-order decision it is a fixed cost — generally not relevant if capacity already exists.
Under C (control): to the shop-floor supervisor it is non-controllable; to the plant head it may be controllable.

The figure is identical; the classification changes with the purpose.

⚠️ Common exam mistakes

Memorising classification labels without linking each to its purpose (stock valuation vs decision making vs control).
Assuming a cost has one fixed classification — the same cost can be product, fixed, and non-controllable simultaneously, depending on the lens applied.
Quoting the A/B/C purpose-grouping as ICAI's official structure in an exam; it is the faculty's simplifying framework.

Reference:

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Cost Classification — Overview by Purpose

Worked example

⚠️ Common exam mistakes