CAS-1 Classification of Cost: Direct, Indirect, Fixed, Variable & ERP Examples

Updated September 2026: CAS-1 (Revised 2015), Classification of Cost, provides a consistent framework for grouping costs in cost statements. The key is to define the reporting purpose and cost object first, then classify costs consistently on a rational basis.

Five practical classification lenses

Direct vs indirect depends on cost object

A motor dedicated to one product can be direct material for that product. A factory supervisor managing several lines is employee cost by nature but normally indirect to individual products. Directness is therefore not an intrinsic label attached forever to a GL account.

Fixed, variable and mixed cost

Analyse actual behaviour within the relevant range. A power tariff can contain both fixed demand charges and variable consumption charges, making it a practical mixed-cost example.

ERP controls

1. Define cost centres and cost objects clearly.
2. Map GL accounts to cost elements and functions.
3. Document direct-cost traceability rules.
4. Maintain rational allocation/apportionment bases.
5. Flag abnormal costs before closing.
6. Reconcile cost statements to underlying books.
7. Control changes in mapping and allocation keys.

Common mistakes

• Treating every material as direct material.
• Forcing common overhead into one product.
• Calling every factory cost variable.
• Hiding abnormal costs in normal performance.
• Confusing job/process costing methods with CAS-1 classification bases.

Frequently asked questions

Official source

ICMAI Cost Accounting Standards Board downloads

Last reviewed: September 2026.