Vitabs Limited (VL) was established 10 years ago. The company manufactures and retails naturally based vitamin tablets, opening its first retail premises in 2013. Since then, VL has successfully expanded and now owns and operates retail outlets in most of the major cities in the UK. The company prides itself on its green credentials being environmentally aware and ecologically friendly. The company undertakers continuous research into new products and markets but the Board of Directors of VL has always found control and evaluation of the Research and Development (R&D) division to be problematic. The R&D director is very protective of her division and is very demanding in her resource requisitions. For the last six years, total R&D expenditure has increased year-on-year at a rate of 10%, based on the incremental budgets prepared by the R&D division. The R&D directors remuneration package is one of the highest in VL and is not impacted by the companys financial results. The major expense item in the R&D division is the salaries of the technical staff. These salaries are high compared to other divisions within VL. R&D is vital to the companys long term success and the Board of Directors does not have an effective tool to measure the performance of the R&D department.

Required:

1. Comment briefly on the existing budgeting approach adopted by VL in controlling its R&D division. (2 marks 75 maximum word limit)

2. Advise on a better budgeting approach for VL to adopt in its R&D division. (4 marks 150 maximum word limit)

3. Comment briefly on the limitations of VL using financial performance measures to control its R&D division. (4 marks 150 maximum word limit)