Produce a business report to Mr. Miller, in good style, that reports on the following issues: –

1. Calculations on the expected level of sales of each product that you believe needs to be made to break even. Back this up with further calculations that show risk in terms of margin of safety. Ensure that you clarify any assumptions that you make and fully discuss the results obtained. (Note, that there are several ways that you can calculate break even and MoS and you can use a number of these in this section.)
2. Discuss the appropriateness of changing from an absorption costing system to activity-based costing (ABC) system in order to manage the overhead costs of the business.
3. Discuss how the present incremental budgeting process may be improved in Pedaltrain to enhance employee motivation and to reduce the possible slack that exists within the budget.
4. Make suggestions as to whether the price of the cycles should be adjusted in the light of current market conditions and current product cost estimates.
5. 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.

---