Waugh & Waugh Company Pty Ltd produce two models of petrol lawnmowers, Standard and Deluxe. Overhead was allocated based on direct labour hours. The following information was collected at the end of 2019.

	Standard	Deluxe
Annual sales	37,000 units	7,000 units
Selling price	$550	$750
Direct material cost per unit	$90	$200
Direct labour cost per unit	$200	$250
Overhead cost per unit	$80	$90

Following an examination of the data above the marketing manager recommended that more emphasis should be placed on selling the Deluxe mower. The manufacturing manager disagreed and argued that there were problems in relation to the costing of the mowers. The management accountant agreed with the manufacturing manager and suggested that an activity based costing system should be installed.

The general manager asked the management accountant to recalculate the product costs using ABC techniques. The management accountant subsequently collected the following information.

Overhead activity	Overhead cost	Cost driver	Standard	Deluxe
Setups	$90,000	Number of setups	25 setups	20 setups
Machining	$2,000,000	Machine hours	70,000 hours	30,000 hours
Engineering	$900,000	Engineering hours	35,000 hours	25,000 hours
Packing	$604,000	Packing orders	30,000 orders	6,000 orders

Required:

(a) Using the activity based costing data calculate the overhead cost per unit for the two mower product lines. (5 marks)

(b) Calculate the contribution margin per unit generated by the two mowers under the conventional costing and activity based costing approaches. (2 marks)

(c) Based on the answers in part b), write a brief note to the general manager explaining the differences in the contribution margins under the two costing approaches and evaluating the suggestion of the marketing manager to switch emphasis to the Deluxe model. (5 marks)