Jupiter Australasia Ltd owns Victory Mowers a manufacturer of gardening equipment which is sold domestically within Australia and to an increasing export market. Victory Mowers manufactures two different models of lawnmowers: the cheaper 'Lawnmaster' and the environmentally-friendly and more expensive 'Green Machine'. A dispute has arisen between senior management at Victory Mowers over the strategic direction of the company. The CEO of Victory, a former marketing executive, wishes to focus more strongly on developing the environmentally friendly 'Green Machine' as he believes it has a higher gross margin and is more profitable than the 'Lawnmaster'. The 'Green Machine' is sold as a premium product through specialist mower dealers while the mass produced 'Lawnmaster' is sold as a basic model through the Bunnings Hardware chain. In contrast to her CEO the divisional management accountant has argued that the standard costing system is not suited to these products and may produce misleading results.

The Strategic Management Committee of Jupiter Australasia Ltd has asked for an analysis of the costing system to provide advice regarding the two models. Currently, Victory Mowers operates a standard costing system where identifiable direct costs are charged to each product and manufacturing overheads are allocated using direct labour hours (DLH) as the sole cost driver.

The following data is provided for the 2020 financial year: 2020 Sales and Cost estimates Lawnmaster Green Machine Forecast Sales (Units) 200,000 25,000 Selling price per unit($) $200 $300 Prime Costs per unit $100 $150 DLH per Unit 2.5 2.5 The activity costs budgeted for overhead for the 2020 financial year and related activity cost drivers were as follow: Amount of Cost Driver OH Activity OH Cost Cost Driver Lawnmaster Green Machine 9 Set Ups $493,750 Number of Set ups 25 50 Laser Cutter $1,100,000 Machine Hours 30.000 10,000 Machining $2,100,000 Machine Hours 50,000 15,000 Assembly $1,250,000 Labour Hours 50,000 25,000 Packing $1,800,000 Number of Orders 1000 500