Selecting the appropriate costing system Larry€™s Car Wash (LCW) offers customers three cleaning options. Under Option 1, only the exterior is cleaned. With Option 2, the exterior and interior are cleaned. Option 3 provides exterior waxing as well as exterior and interior cleaning. LCW completed 4,000 Option 1 cleanings, 5,200 Option 2 cleanings, and 3,200 Option 3 cleanings during 2012. The average cost of completing each cleaning option and the price charged for it are shown here.

Required
a. Is LCW a manufacturing or a service company? Explain.
b. Which costing system, job-order or process, is most appropriate for LCW? Why?
c. What is the balance in LCW€™s Work in Process and Finished Goods Inventory accounts on the December 31 balance sheet?
d. Speculate as to the major costs that LCW incurs to complete a cleaning job.

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Option 1 Option 2 Option 3 $21 15 Price charged Costs of completing task $12 $10 4