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

question 132

Essay

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.

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Definitions:

Price

The price in terms of money that is predicted, necessary, or paid for an object.

Equilibrium Price

The price at which the quantity of goods suppliers are willing to produce equals the quantity of goods consumers are willing to buy.

Corn-based Ethanol

Ethanol produced from corn as a biomass through a fermentation process, primarily used as a biofuel additive for gasoline.

Household Incomes

The total amount of money earned by every member of a household, including wages, salaries, benefits, and other sources of income.