Discuss the appropriateness of changing from (i) an absorption costing system to (ii) an activity-based costing system in order to manage the overhead costs of the business. Discuss how the present incremental budgeting process may be improved in Pedaltrain to enhance employee motivation and reduce the possible slack that exists within the budget.

Make suggestions as to whether the price of the cycles should be adjusted in light of current market conditions and current product cost estimates. Discuss some of the potential drawbacks in using financial performance measures and suggest, with examples, some of the alternative, non-financial measures of performance that could be used in Pedaltrain.

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