Case Study 4.1 Vershire Company
Management Control Systems
Case 4-1 Vershire Company
The case 4-1 deals with the control system, budgeting process and performance measurement of Vershire Company, a large business in the metal can industry. Vershire experienced a strong pressure as they have to meet the customers` expectations about quality, customer service and prices because otherwise they will take another supplier. This situation leads to a very high demand for efficiency and effectiveness and therefore a good planning and control system. The biggest problem in this process is that each of the different plants in the U.S. are treated as profit centers rather than engineered expense centers.
1. The planning and control system also presents several strength and weaknesses which are going to be explained in the following paragraph:
Strengths of the planning system: * Divisional managers are required to predict market conditions and capital expenditures five years in advance and prepare a forecast for the subsequent two years. This is a good way for the divisions and the company as a whole to anticipate sales, income, and capital requirements that are necessary to make future decisions and remain competitive. * After the forecast is made by the head office divisional managers are allowed to give their input regarding the budget, which enhances the quality of the budget since divisional managers have a more realistic outlook on what sales will be for the coming year. * During the visit of the corporate controllers, plant managers have the opportunity to explain their situation and discuss in detail specifics that affect their plants. This will allow for a more accurate and complete budget to be produced.
Weaknesses of the planning system: * The initial sales forecast and its underlying assumptions shouldn´t be made by the head office as divisional managers are in charge of managing the operations of each division, they should be given the responsibility of making their own
Case 4-1 Vershire Company
The case 4-1 deals with the control system, budgeting process and performance measurement of Vershire Company, a large business in the metal can industry. Vershire experienced a strong pressure as they have to meet the customers` expectations about quality, customer service and prices because otherwise they will take another supplier. This situation leads to a very high demand for efficiency and effectiveness and therefore a good planning and control system. The biggest problem in this process is that each of the different plants in the U.S. are treated as profit centers rather than engineered expense centers.
1. The planning and control system also presents several strength and weaknesses which are going to be explained in the following paragraph:
Strengths of the planning system: * Divisional managers are required to predict market conditions and capital expenditures five years in advance and prepare a forecast for the subsequent two years. This is a good way for the divisions and the company as a whole to anticipate sales, income, and capital requirements that are necessary to make future decisions and remain competitive. * After the forecast is made by the head office divisional managers are allowed to give their input regarding the budget, which enhances the quality of the budget since divisional managers have a more realistic outlook on what sales will be for the coming year. * During the visit of the corporate controllers, plant managers have the opportunity to explain their situation and discuss in detail specifics that affect their plants. This will allow for a more accurate and complete budget to be produced.
Weaknesses of the planning system: * The initial sales forecast and its underlying assumptions shouldn´t be made by the head office as divisional managers are in charge of managing the operations of each division, they should be given the responsibility of making their own