Final answer:
Costs are categorized by function in costing and by behavior in costing.
Step-by-step explanation:
When using (1) costing, costs are categorized by function. This means that costs are classified according to the different areas or departments of the business where they occur. For example, costs may be categorized as production costs, marketing costs, or administrative costs, depending on the function they serve within the organization.
On the other hand, when using (2) costing, costs are categorized by behavior. This means that costs are classified based on how they change in relation to the level of production or activity. Costs can be classified as fixed costs, variable costs, or semi-variable costs, depending on their behavior.