It may be more appropriate for firms to employ long-term expected demand to allocate fixed capacity costs, and actual demand to allocate short-term variable costs.

Question

Quizplus · Accepted Answer

Long-term expected demand is a better basis to allocate fixed capacity costs because these costs are relatively fixed in the short-term and only change significantly over longer periods of time. Actual demand is a better basis to allocate short-term variable costs because these costs fluctuate with changes in demand in the short-term.

It May Be More Appropriate for Firms to Employ Long-Term