From the perspective of long-run product costing it is best to use:
A)master-budget capacity utilization to highlight unused capacity
B)normal capacity utilization for benchmarking purposes
C)practical capacity for pricing decisions
D)theoretical capacity for performance evaluation

Question

Quizplus · Accepted Answer

Practical capacity is the best choice for long-run product costing for pricing decisions. It represents the maximum feasible output level that a firm can sustainably maintain based on its resources, technology, and operating conditions. This capacity level excludes the effects of seasonality, maintenance activity, and other non-operating factors that can affect production. Since practical capacity reflects the true production potential of a firm in the long run, it is well-suited for determining the cost of goods sold, pricing decisions, and capacity planning. Master-budget and theoretical capacity are less relevant in this context since they are either too theoretical or too constrained by budgetary limits to provide an accurate picture of long-run costs. Normal capacity may be useful for benchmarking purposes, but it may not reflect the true production potential of a firm in the absence of seasonality or other non-operational factors.

From the Perspective of Long-Run Product Costing It Is Best