Selecting the appropriate costing system Schroeder Automotive Specialties, Inc., has a successful market niche. It customizes automobile interiors to fit the various needs of disabled customers. Some customers need special equipment to accommodate disabled drivers. Others need modified entrance and seating arrangements for disabled passengers. Customer vehicles vary according to different brands and models of sedans, minivans, sport utility vehicles, and full-size vans. Schroeder’s engineers interview customers directly to ascertain their special needs. The engineers then propose a design, explaining it and its cost for the customer’s approval. Customers have the opportunity to request changes. Once the company and customer agree on an engineering design and its price, they sign a contract, and the customer’s vehicle is delivered to Schroeder’s factory. The factory manager directs mechanics to customize the vehicle according to the engineering design.
Required
a. Is Schroeder a manufacturing company or a service company? Explain.
b. Which costing system, job-order or process, would be most appropriate for Schroeder? Why?
c. Does Schroeder have work in process and finished goods inventories?
d. Should Schroeder classify engineering design costs as materials, labor, or overhead? Why?