How to conditionally transform multiple XML elements into one element using XSLT?

Question

Let's say I have two types of XML elements with text content that can be either 'true' or 'false':

<elementA>true</elementA>, 
<elementB>false</elementB> 

I would like to create a new element

<result>$content</result> 

where variable $content can have 4 types of values based on the two input element values:

true, true -> A

true, false -> B

false, true -> C

false, false -> D

I was trying to solve this with xsl:function, but have no idea how to select the two elements at the same time (I have little experience with xslt). Is it possible to do this kind of transformation?

EDIT

I was experimenting with your second solution, however my main source of problem is that I don't know how to pass the variables to my function. Currently I have the following code:

<xsl:template match="@* | node()">
    <xsl:copy>
        <xsl:apply-templates select="@* | node()"/>
    </xsl:copy>
</xsl:template>

<xsl:function name="transform">
    <xsl:param name="p1"></xsl:param>
    <xsl:param name="p2"></xsl:param>
    <xsl:choose>
        <xsl:when test="$p1='true' and $p2='true'">
            <orderingType>RND</orderingType>
        </xsl:when>
        <xsl:when test="$p1='true' and $p2='false'">
            <orderingType>FIX</orderingType>
        </xsl:when>
        <xsl:when test="$p1='false' and $p2='false'">
            <orderingType>PREF</orderingType>
        </xsl:when>
    </xsl:choose>
</xsl:function>

<xsl:template match="//action/*">
    <xsl:variable name="var1" select="shuffle"></xsl:variable>
    <xsl:variable name="var2" select="limitOn"></xsl:variable>

</xsl:template>

Answer 1

How about:

<xsl:variable name="index" select="2*(elementA='false') + (elementB='false')" />
<result>
    <xsl:value-of select="substring('ABCD', $index + 1, 1)" />
</result>

Alternatively, use xsl:choose and specify each case and its result explicitly within a xsl:when instruction:

<xsl:choose>
    <xsl:when test="elementA='true' and elementB='true'">A</xsl:when>
    <xsl:when test="elementA='true' and elementB='false'">B</xsl:when>
    <xsl:when test="elementA='false' and elementB='true'">C</xsl:when>
    <xsl:otherwise>D</xsl:otherwise>
</xsl:choose>

Answer 2

A template should do it;

<xsl:template match="xml-fragment">
    <xsl:variable name="p1">
        <xsl:value-of select="elementA"/>
    </xsl:variable>
    <xsl:variable name="p2">
        <xsl:value-of select="elementB"/>
    </xsl:variable>     
    <xsl:choose>
        <xsl:when test="$p1='true' and $p2='true'">
            <orderingType>RND</orderingType>
        </xsl:when>
        <xsl:when test="$p1='true' and $p2='false'">
            <orderingType>FIX</orderingType>
        </xsl:when>
        <xsl:when test="$p1='false' and $p2='false'">
            <orderingType>PREF</orderingType>
        </xsl:when>
    </xsl:choose>       
</xsl:template>