diff --git a/apply-config.js b/apply-config.js
index d36a1e1..8a1afd5 100755
--- a/apply-config.js
+++ b/apply-config.js
@@ -165,8 +165,21 @@ async function applyConfig(configPath = "awesome-copilot.config.yml") {
   ensureDirectoryExists(path.join(outputDir, "instructions"));
   ensureDirectoryExists(path.join(outputDir, "chatmodes"));
   
+  // Check if this is a subsequent run by looking for existing state
+  const stateFilePath = path.join(outputDir, ".awesome-copilot-state.json");
+  let previousState = {};
+  if (fs.existsSync(stateFilePath)) {
+    try {
+      previousState = JSON.parse(fs.readFileSync(stateFilePath, 'utf8'));
+    } catch (error) {
+      // If state file is corrupted, treat as first run
+      previousState = {};
+    }
+  }
+
   let copiedCount = 0;
   let removedCount = 0;
+  let skippedCount = 0;
   const summary = {
     prompts: 0,
     instructions: 0,
@@ -204,9 +217,13 @@ async function applyConfig(configPath = "awesome-copilot.config.yml") {
         const destPath = path.join(outputDir, destDir, `${itemName}${fileExtension}`);
         
         if (enabled && fs.existsSync(sourcePath)) {
-          copyFile(sourcePath, destPath);
-          copiedCount++;
-          summary[sectionName]++;
+          const copyResult = copyFileWithTracking(sourcePath, destPath);
+          if (copyResult.copied) {
+            copiedCount++;
+            summary[sectionName]++;
+          } else if (copyResult.skipped) {
+            skippedCount++;
+          }
           enabledInSection.add(itemName);
         } else if (!enabled && fs.existsSync(destPath)) {
           // Remove file if it's disabled
@@ -235,6 +252,29 @@ async function applyConfig(configPath = "awesome-copilot.config.yml") {
     }
   }
 
+  // Helper function to copy files with tracking
+  function copyFileWithTracking(sourcePath, destPath) {
+    // Check if file already exists and is identical
+    if (fs.existsSync(destPath)) {
+      try {
+        const sourceContent = fs.readFileSync(sourcePath);
+        const destContent = fs.readFileSync(destPath);
+        
+        if (sourceContent.equals(destContent)) {
+          // Files are identical, no need to copy
+          console.log(`⚡ Skipped (up to date): ${path.basename(sourcePath)}`);
+          return { copied: false, skipped: true };
+        }
+      } catch (error) {
+        // If we can't read files for comparison, just proceed with copy
+      }
+    }
+
+    fs.copyFileSync(sourcePath, destPath);
+    console.log(`✓ Copied: ${path.basename(sourcePath)}`);
+    return { copied: true, skipped: false };
+  }
+
   // Helper function to check if an item is in an enabled collection
   function isItemInEnabledCollection(filename, enabledItems) {
     for (const itemPath of enabledItems) {
@@ -277,9 +317,13 @@ async function applyConfig(configPath = "awesome-copilot.config.yml") {
       // Only copy if not explicitly disabled in individual settings
       const isExplicitlyDisabled = config[section] && config[section][itemName] === false;
       
-      if (destPath && !fs.existsSync(destPath) && !isExplicitlyDisabled) {
-        copyFile(sourcePath, destPath);
-        copiedCount++;
+      if (destPath && !isExplicitlyDisabled) {
+        const copyResult = copyFileWithTracking(sourcePath, destPath);
+        if (copyResult.copied) {
+          copiedCount++;
+        } else if (copyResult.skipped) {
+          skippedCount++;
+        }
       }
     }
   }
@@ -290,6 +334,9 @@ async function applyConfig(configPath = "awesome-copilot.config.yml") {
   console.log("=".repeat(50));
   console.log(`📂 Output directory: ${outputDir}`);
   console.log(`📝 Total files copied: ${copiedCount}`);
+  if (skippedCount > 0) {
+    console.log(`⚡ Files skipped (up to date): ${skippedCount}`);
+  }
   if (removedCount > 0) {
     console.log(`🗑️  Total files removed: ${removedCount}`);
   }
@@ -301,6 +348,20 @@ async function applyConfig(configPath = "awesome-copilot.config.yml") {
   if (config.project?.name) {
     console.log(`🏷️  Project: ${config.project.name}`);
   }
+
+  // Save current state for future idempotency checks
+  const currentState = {
+    lastApplied: new Date().toISOString(),
+    configHash: Buffer.from(JSON.stringify(config)).toString('base64'),
+    outputDir: outputDir
+  };
+  
+  try {
+    fs.writeFileSync(stateFilePath, JSON.stringify(currentState, null, 2));
+  } catch (error) {
+    // State saving failure is not critical
+    console.log("⚠️  Warning: Could not save state file for future optimization");
+  }
   
   console.log("\nNext steps:");
   console.log("1. Add the files to your version control system");
@@ -319,14 +380,6 @@ function ensureDirectoryExists(dirPath) {
   }
 }
 
-/**
- * Copy file from source to destination
- */
-function copyFile(sourcePath, destPath) {
-  fs.copyFileSync(sourcePath, destPath);
-  console.log(`✓ Copied: ${path.basename(sourcePath)}`);
-}
-
 // CLI usage
 if (require.main === module) {
   const configPath = process.argv[2] || "awesome-copilot.config.yml";
diff --git a/test-functionality.js b/test-functionality.js
new file mode 100755
index 0000000..ef81de5
--- /dev/null
+++ b/test-functionality.js
@@ -0,0 +1,165 @@
+#!/usr/bin/env node
+
+/**
+ * Simple test script to validate enhanced awesome-copilot functionality
+ * This script tests the key features implemented in the enhancement
+ */
+
+const fs = require('fs');
+const path = require('path');
+const { execSync } = require('child_process');
+
+const TEST_CONFIG = 'test-functionality.yml';
+const TEST_OUTPUT_DIR = '.test-output';
+
+console.log('🧪 Testing enhanced awesome-copilot functionality...\n');
+
+// Cleanup function
+function cleanup() {
+  if (fs.existsSync(TEST_CONFIG)) {
+    fs.unlinkSync(TEST_CONFIG);
+  }
+  if (fs.existsSync(TEST_OUTPUT_DIR)) {
+    execSync(`rm -rf ${TEST_OUTPUT_DIR}`);
+  }
+  if (fs.existsSync('.awesome-copilot')) {
+    execSync(`rm -rf .awesome-copilot`);
+  }
+}
+
+function runCommand(cmd, description) {
+  console.log(`📋 ${description}`);
+  try {
+    const output = execSync(cmd, { encoding: 'utf8', cwd: __dirname });
+    console.log(`✅ Success: ${description}`);
+    return output;
+  } catch (error) {
+    console.log(`❌ Failed: ${description}`);
+    console.log(`   Error: ${error.message}`);
+    throw error;
+  }
+}
+
+function checkFileExists(filePath, shouldExist = true) {
+  const exists = fs.existsSync(filePath);
+  if (shouldExist && exists) {
+    console.log(`✅ File exists: ${filePath}`);
+    return true;
+  } else if (!shouldExist && !exists) {
+    console.log(`✅ File correctly removed: ${filePath}`);
+    return true;
+  } else {
+    console.log(`❌ File ${exists ? 'exists' : 'missing'}: ${filePath} (expected ${shouldExist ? 'to exist' : 'to be removed'})`);
+    return false;
+  }
+}
+
+try {
+  // Test 1: Initialize a test configuration
+  console.log('\n🔧 Test 1: Initialize test configuration');
+  runCommand(`node awesome-copilot.js init ${TEST_CONFIG}`, 'Initialize test config');
+  
+  // Test 2: Validate configuration file was created
+  console.log('\n🔧 Test 2: Validate configuration file');
+  if (!checkFileExists(TEST_CONFIG)) {
+    throw new Error('Configuration file was not created');
+  }
+
+  // Test 3: Test enhanced list command (should show collections first)
+  console.log('\n🔧 Test 3: Test enhanced list command');
+  const listOutput = runCommand(`node awesome-copilot.js list --config ${TEST_CONFIG}`, 'List all items with enhanced display');
+  
+  if (!listOutput.includes('Collections (')) {
+    throw new Error('Enhanced list should show Collections section first');
+  }
+  
+  if (!listOutput.includes('📦 indicates items that are part of collections')) {
+    throw new Error('Enhanced list should show collection indicators help text');
+  }
+
+  // Test 4: Test collection toggle with cascading
+  console.log('\n🔧 Test 4: Test collection toggle with cascading');
+  const toggleOutput = runCommand(`node awesome-copilot.js toggle collections project-planning on --config ${TEST_CONFIG}`, 'Enable collection with cascading');
+  
+  if (!toggleOutput.includes('individual items from collection')) {
+    throw new Error('Collection toggle should report cascading to individual items');
+  }
+  
+  if (!toggleOutput.includes('Applying configuration automatically')) {
+    throw new Error('Collection toggle should auto-apply configuration');
+  }
+
+  // Test 5: Test individual item override
+  console.log('\n🔧 Test 5: Test individual item override');
+  runCommand(`node awesome-copilot.js toggle prompts breakdown-epic-arch off --config ${TEST_CONFIG}`, 'Disable individual item in collection');
+  
+  // Check that the file was removed
+  const promptPath = path.join('.awesome-copilot', 'prompts', 'breakdown-epic-arch.prompt.md');
+  if (!checkFileExists(promptPath, false)) {
+    throw new Error('Individual item override did not remove file');
+  }
+
+  // Test 6: Test idempotency (running apply twice should skip files)
+  console.log('\n🔧 Test 6: Test idempotency');
+  const applyOutput1 = runCommand(`node awesome-copilot.js apply ${TEST_CONFIG}`, 'First apply run');
+  const applyOutput2 = runCommand(`node awesome-copilot.js apply ${TEST_CONFIG}`, 'Second apply run (should be idempotent)');
+  
+  if (!applyOutput2.includes('Skipped (up to date)')) {
+    throw new Error('Second apply should skip files that are up to date');
+  }
+
+  // Test 7: Test config validation with invalid config
+  console.log('\n🔧 Test 7: Test config validation');
+  const invalidConfig = `
+version: 1.0
+prompts:
+  test-prompt: invalid_boolean_value
+unknown_section:
+  test: true
+`;
+  
+  fs.writeFileSync('test-invalid-config.yml', invalidConfig);
+  
+  try {
+    execSync(`node awesome-copilot.js apply test-invalid-config.yml`, { encoding: 'utf8' });
+    throw new Error('Invalid config should have been rejected');
+  } catch (error) {
+    if (error.stderr && error.stderr.includes('Configuration validation errors')) {
+      console.log('✅ Config validation correctly rejected invalid configuration');
+    } else if (error.message && error.message.includes('Configuration validation failed')) {
+      console.log('✅ Config validation correctly rejected invalid configuration');
+    } else {
+      throw new Error('Config validation did not provide proper error message');
+    }
+  } finally {
+    if (fs.existsSync('test-invalid-config.yml')) {
+      fs.unlinkSync('test-invalid-config.yml');
+    }
+  }
+
+  // Test 8: Check that state file is created for idempotency
+  console.log('\n🔧 Test 8: Check state file creation');
+  const stateFilePath = path.join('.awesome-copilot', '.awesome-copilot-state.json');
+  if (!checkFileExists(stateFilePath)) {
+    throw new Error('State file should be created for idempotency tracking');
+  }
+
+  console.log('\n🎉 All tests passed! Enhanced functionality is working correctly.');
+  console.log('\n✨ Features validated:');
+  console.log('   • Collection toggle with item cascading');
+  console.log('   • Enhanced list display with collection indicators');
+  console.log('   • Auto-apply after toggle operations');
+  console.log('   • File removal when items are disabled');
+  console.log('   • Individual item overrides');
+  console.log('   • Idempotent apply operations');
+  console.log('   • Configuration validation with error reporting');
+  console.log('   • State tracking for optimization');
+
+} catch (error) {
+  console.log(`\n💥 Test failed: ${error.message}`);
+  process.exit(1);
+} finally {
+  // Cleanup
+  cleanup();
+  console.log('\n🧹 Cleanup completed.');
+}
\ No newline at end of file
diff --git a/test-invalid.yml b/test-invalid.yml
deleted file mode 100644
index 05084e7..0000000
--- a/test-invalid.yml
+++ /dev/null
@@ -1,16 +0,0 @@
-# Invalid config for testing
-version: 1.0
-
-project:
-  name: "Test Project"
-  output_directory: ".awesome-copilot"
-
-prompts:
-  breakdown-epic-arch: invalid_value  # This should be boolean
-  breakdown-epic-pm: true
-
-invalid_section:
-  some_key: true
-
-instructions:
-  task-implementation: "yes"  # This should be boolean
\ No newline at end of file