Caro Manufacturing has two production departments, Machining and Assembly, and two service departments, Maintenance and Cafeteria. Direct costs for each department and the proportion of service costs used by the various departments for the month of August follow:           Proportion of Services Used by Department Direct Costs Maintenance Cafeteria Machining Assembly Machining $ 115,000                   Assembly   70,000                   Maintenance   55,000   —   0.2   0.5   0.3   Cafeteria   35,000   0.6   —   0.2   0.2       Required: Use the step method to allocate the service costs, using the following: a. The order of allocation starts with Maintenance. b. The allocations are made in the reverse order (starting with Cafeteria).

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Overheads

In cost accounting, overhead refers to those expenses which occur during the operating of a business. Overhead includes the fixed, variable, or semi-variable which is not directly involved with a company product or service. It is very important to analyze overhead expense as it helps the company in determining how much a company must charge for its products and services so that they can generate profit.  Overhead expenses depend upon the nature of the business operations.