A Local Post Office Sorts Letters by Postal Code $\begin{array}{lr}\text { Direct labour } & \$ 12,000 \\\text { Overhead } & 8,000 \\\text { Total } & \$ 20,000 \\\end{array}$

A local post office sorts letters by postal code.During the month of July,200,000 letters were sorted.The cost of sorting includes the following:
$\begin{array}{lr}\text { Direct labour } & \$ 12,000 \\\text { Overhead } & 8,000 \\\text { Total } & \$ 20,000 \\\end{array}$
a.Explain why process costing is appropriate for this operation.
b.Calculate the cost per letter for this operation.
c.There are no direct materials used for the sorting operation.Is the absence of direct materials typical of services? If not,provide examples of services that use direct materials.

Correct Answer:

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a.A process costing approach can be used...

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