Northern Rail is a small railway that recently began running a route between a large mine in Norther Ontario and Minnesota in the United States. The company has two main business line: Rail Transport and Sleeper Manufacturing. There are also three support departments: Building, HQ and Material Handling. HQ costs are allocated on the basis of raw material and overhead costs (before allocations). Support department costs are allocated in the following order: Building 1^st, HQ 2^nd and Material Handling 3^rd. Financial and non-financial information about each responsibility centre is as follows:

BuildingHQMat. HandlingRail TransportSleepersTotal Overhead costs (in $)80,000 550,000 100,000 1,500,000 400,000 2,630,000 Employees (in bodies) 2 2 2 5 6 17 Facilities (in m²⁾ 1,000 2,000 3,000 9,000 1,000 16,000 materials used (in$)000 1,402,000 298,000 1,700,000 Direct Labour (in hrs)0 0 0 7,400 8,200 15,600

Required:

Using the Step-down method allocate overhead costs to the two Business lines. (7 marks)

Suppose that a standard sleeper costs $100 in Materials and takes an average of 1 direct labour hour to manufacture. What is the fully-loaded cost for a sleeper, assuming that overhead costs are allocated on the basis of Direct Labour Hours. (1 mark)