Management accounting classifies costs according to their common characteristics to meet planning, control, and decision making requirements. For planning, costs are classified by behavior, expense type, and function to develop budget information. For control, costs are classified by behavior, function, expense type, controllability, and relevance to compare actual and budgeted performance. For decision making, costs are classified by expense type, behavior, and relevance to identify how costs change with alternative courses of action and determine relevant costs.

1. INTRODUCTION
Management accounting is application of principles of accounting and financial
management to protect, preserve and increase value to stake holder of both profit and not for
profit enterprise.
Cost classification is the process of grouping costs according to their common characteristics. A
suitable classification of costs is of vital importance in order to identify the cost with cost
centers or cost units.
Cost may be classified accounting to their nature, i.e., material, labor and expenses and
a number of other characteristics. Classification of costs is done for the development of the cost
data that are useful to management.
The cost classification is a process of grouping costs according to their common characteristics.
It is important as it identifies the cost with cost centers or cost units. Classification of costs is
done on the basis of a number of ways.
Management accounting system should generate information to meet the following
requirement,
1. To allocate cost of goods sold and inventories
2. To allocate relevant information for decision making
3. To provide information for planning, control, and performance measurement
Coming back to our question it relate to how cost can be classified for meeting the planning,
control and decision making requirements,
PLANNING
Planning relates to the annual budgeting and long term processes, within this process cost can
be classified by,

2. 
Behavior, by classifying cost into fixed, semi fixed, variable and semi variable
categories, the outcomes from different activities levels can be examined.

Expense type-classifying by expense types provides useful information on the
nature, content and trend of different expense categories that is useful for
planning how much should be authorized on spending within the different
categories.

Function, function are the different responsibility centers within the
organization. The budget is build up by the functional levels so that everyone in
the organization has a clear understanding of the role that their responsibility
center has in achieving the annual budget.
Controllability classifying expenses by responsibility centers determines the
individuals who are accountable for achieving the budget and who should thus
be involved I setting the budget for the specific responsibility centers.
CONTROL
Also within the control process cost can be classified by,

Behavior, cost must be classified by behavior for comparing actual and budgeted
performance using flexible budgets.

Function, for control, cost and revenues should be traced to the heads of the
responsibility centers that are responsible for incurring them.

Expense type, this will ensure that like items are compared with one another
when budget and actual performance and compared and trends in revenue and
different expense categories are monitored.

Controllability, costs and revenues must be assigned to the responsibility heads
that are made accountable for them so that effective control can be exercised.

Relevance, attention should only be focused on those expense categories where
there are significant deviations from the budget. Insignificant deviations are not
relevant for cost control.

3. DECISION MAKING
Also decision making involves choosing between alternatives course of actions,
the following classification are important for decision making,

By expense type-this is necessary to identify how different cost categories will
change as a result of pursuing alternative courses of action.

By behavior-classification of costs by fixed, variable, semi fixed cost for
alternative courses of action. In particular classification is necessary for costvolume profit analysis and identifying break-even levels.

By relevance, for decision making it is necessary to distinguish between relevant
and irrelevant costs and revenues for alternative courses of action.
For decision making, costs and revenues can be classified according to
whether they are relevant to a particular decision. Relevant costs and revenues
are those future costs and revenues that will be changed by a decision, whereas
irrelevant costs and revenues are those that will to be affected by the decision.