Egerton Manufacturing Ltd produces a range of products at seven separate sites. The directors have decided to introduce Activity Based Costing (ABC) and have asked each site manager to obtain and analyse the relevant data for their site. Product costs are currently calculated using absorption costing, with overheads being absorbed on a machine hour basis. As part of the process of introducing ABC, the directors wish to assess the profitability of individual products, with the possibility that the product range may be reduced. You are the Manager of the Brumley site and you have obtained the following data:

Product	A	B	C
	$	$	$
Selling price per unit	300	530	435
Direct material per unit	55	67	98
Direct labour per unit	41	54	57
Overheads per unit	117.20	293	117.20
Total cost per unit	213.20	414	272.20
Budgeted production volume	600 units	400 units	200 units
Machine hours per unit	0.6	1.5	0.6
Production runs in period	32	40	25
Number of sale orders	19	5	15
Number of deliveries of material	8	2	16

The budgeted overheads of the site for the period are:

Machine running costs	$78,560
Set up costs	$82,900
Material handling costs	$49,500

Machine hours are limited to 1,140 hours per period.

Required:

a) Calculate the cost of each product using ABC. Choose appropriate cost drivers for each activity

b) Draft a memo to the Managing Director which:

(i) Using the ABC information, indicates which product(s) should no longer be manufactured and justify your recommendation;

(ii) Discuss any other factors which should be considered before a final decision is made.