The first step in implementing a cost accounting system is to identify and classify costs. Using a functional-based approached means that you group costs by department, as opposed to activity. For example, a company might split the cost of an electric bill between the manufacturing and selling functions. This attributes the cost to the business functions that are using the electricity. This is in contrast to an activity-based costing system, which would allocate the electric bill on the basis of activities, such as providing customer support or research and development of new products.