# Meaning of Cost & Overview of Cost Classification
## What is Cost?
Cost means resources sacrificed for the purpose of carrying on a business or profession, which can be quantified in monetary terms.
Three key terms are embedded in this definition — all three must be present for an item to qualify as a 'cost':
| Key Term | What it means |
|---|---|
| Sacrifice of Resources | Something of value is given up |
| Relating to Business/Profession | The sacrifice is for business/profession (not personal) |
| Quantifiable in Monetary Terms | It can be measured in money |
## Why Classify Costs?
The same cost can be looked at in different ways depending on what decision the management is trying to make. Classification is always purpose-driven. There are three broad purposes:
| Purpose | Classifications used |
|---|---|
| A. Stock Valuation & Profit Computation | A1: Expired & Unexpired · A2: Product & Period · A3: Manufacturing/Admin/Selling/Distribution · A4: Job & Unit |
| B. Decision Making | B1: Variable, Fixed & Semi-Variable · B2: Sunk Cost · B3: Opportunity Cost |
| C. Control | C1: Controllable & Non-Controllable |
> Mental model: First ask "For what purpose am I classifying?" Then pick the relevant classification. The same ₹ of cost can sit in different buckets under different purposes.
Faculty note: This three-purpose framework is a teaching structure to simplify the concepts and may not appear in identical form in the ICAI Study Material.