This text emphasizes that managers use alternative ways to compute costs in different decision-making situations because there are different costs for different purposes. A cost concept used for external reporting may not be appropriate for internal, routine reporting.
Consider the advertising costs associated with Microsoft Corporation’s launch of a product with a useful life of several years. For external reporting to shareholders, Generally Accepted Accounting Principles require television advertising costs for this product to be fully expensed in the income statement in the year they are incurred. However, for internal reporting, the television advertising costs could be capitalized and then amortized or written off as expenses over several years if Microsoft’s management team believes that doing so would more accurately and fairly measure the performance of the managers that launched the new product.