Which of the following correctly identifies the best use for each costing method? E - External reporting
P - Performance evaluations
S - Short-term capacity decisions
A) P/S/E
B) S/E.P
C) E/P/S
D) E/S/P

Question

Which of the following correctly identifies the best use for each costing method? E - External reporting
P - Performance evaluations
S - Short-term capacity decisions 
A) P/S/E 
B) S/E.P 
C) E/P/S 
D) E/S/P

Quizplus · Accepted Answer

External reporting requires accurate and reliable information and is best served using the absorption costing method. Performance evaluations require a clear understanding of the costs and profitability of different products, services, or divisions and therefore, activity-based costing (ABC) or variable costing are better options. Short-term capacity decisions often require making decisions based on the behavior of variable costs, making variable costing the most appropriate method. Therefore, the best use for each costing method in order is External reporting, Performance evaluations, and Short-term capacity decisions, which can be represented as E/P/S or C.

Which of the Following Correctly Identifies the Best Use for Each