@ ABC and beyond budgeting [L05] (Note you may want to refer back to Chapter 6, ABC to help you with this question.) Robust Laptops Co. (RL) make laptop computers for use in dangerous environments. The company's main customers are organizations such as oil companies and the military that require a laptop that can survive rough handling in transport to a site and can be made to their unique requirements. The company started as a basic laptop manufacturer but its competitors grew much larger and RL had to nd a niche market where its small size would not hinder its ability to compete. It is now considered one of the best quality producers in this sector. For many years RL had the same nance director, who preferred to develop its systems organically. However, due to fall in protability, a new chief executive ofcer (CEO) has been appointed who wishes to review RL's nancial control systems in order to get better information with which to tackle the prot issue. The CEO wants to begin by thinking about the pricing of the laptops to ensure that selling expensive products at the wrong price is not compromising prot margins. The laptops are individually specied by customers for each order, and pricing has been on a production cost plus basis with a mark-up of 45 per cent. The company uses an absorption costing system based on labour hours in order to calculate the production cost per unit. The main control system used within the company is the annual budget. It is set before the start of the nancial year and variances are monitored and acted upon by line managers. The CEO has been reading about major companies that have stopped using budgets and wants to know how such a radical move works and why a company might take such a step. He has been worried by moves by competitors into RL's market with impressive new products. This has created unrest among the staff at RL, with two experienced managers leaving the company. Financial and other information for Robust Laptops Robust Laptops Data for the year ended 30 September 201x Volume (units) 23,800 Total 000 Direct variable costs Material 40,650 Labour 3, 879 Packaging and transport Subtotal 46,647 Overhead costs Customer service 7,735 Purchasing and receiving 2,451 Inventory management 1,467 Administration of production 2,537 Subtotal 14,190 Total 60.83 7 260 CHAPTER 10 Beyond Traditional Budgeting Required: Labour time per unit 3 hours Data collected for the year: . No. of minutes on calls to customer 899,600; No. of purchase orders raised 21,400 No. of components used in production 618,800 Order 11784 Units ordered 16 Direct costs for this order: Material 27,328 Labour 2,608 Packaging and transport 1,424 Other activities relating to this order: No. of minutes on calls to customer 1,104 No. of purchase orders raised 64 No. of components used in production 512 Administration of production (absorbed as general overhead) 3 labour hrs per unit Write a report to the CEO to include: a) An evaluation of the current method of costing against an activity-based costing system. You should provide illustrative calculations using the information provided on costs for 201x and Order 11784. Briey state what action management might take in the light of your results with respect to this order. 1)) An explanation of the operation of a beyond budgeting approach and an evaluation of the potential of such a change at RL. Source: adapted from Association of Chartered Certied Accountants, Paper P5