DroneTech manufactures specialised drones for government surveillance and monitoring purposes. To date it has only been making and selling a single standard model. Recently however DroneTech introduced a high resolution compact (HRC) model, which has a smaller body with stealth capability, highly advanced cameras and is more manoeuvrable. Since its introduction, sales of the HR model have been strong but overall company profits have declined steadily. The company currently allocates manufacturing overheads to products based on direct labour hours. Material and labour costs for last month were as follows:

	Standard model	HRC	Total
Direct Materials	$280,000	$240,000	$520,000
Direct Labour	$330,000	$170,000	$500,000

Last month manufacturing overheads were $800,000 based on the production of 7,200 units of the standard model and 2,400 units of the HRC model. Each standard model uses 3 hours of direct labour while each HRC model uses 2 hour. Company management thinks that the current method of costing may not be accurate and wonders if using activity-based costing (ABC) could help to cost its drones more accurately. Company management recently hired KPMH consultants who discovered that overhead costs could be separated into three core activities. These activities, and their costs and cost drivers for last month, are summarised in the table below:

			Usage of Cost Driver
Activity	Cost	Cost driver	Standard	HCR	Total
Equipment setup	$520,000	Number of production	280	120	400
Quality Control	$100,000	Number of random inspections	30	70	100
Material inspections	$180,000	Number of receiving reports	400	200	600
Total	$800,000

Required:

a) Calculate the unit costs of each model if the overheads are allocated using direct labour hours.

b) Calculate the unit cost of each model if the overheads are allocated using ABC.

c) Should DroneTech discontinue the standard model? In answering this question ensure that you directly compare the ABC method to the direct labour hours method to explain the basis of your decision to discontinue the standard model or not.