A local barbershop cuts the hair of male customers. The barbers offer no special styling. During the month of February, 1,500 haircuts were given. The cost of haircuts includes the following:
Direct labor ..... $10,500
Direct materials ..... 1,500
Overhead ...... 3,000
Total .......... $15,000
Required:
1. Explain why process costing is appropriate for this haircutting operation.
2. Calculate the cost per haircut.
3. Can you identify some possible direct materials used for this haircutting service? Is the usage of direct materials typical of services? If so, provide examples of services that use direct materials. Can you think of some services that would not use direct materials?