Vershire

Vershire

Commerce 4AA3

Managerial Accounting II

Group 4

Re: Budget Planning, Control and Performance Assessment issues at Vershire Company (1996)

Role: External Consultant

Vershire Company is a large competitor in the US packaging industry. It manufactures a variety of products and managed to be a growth leader in its Aluminum Can division. The industry is fiercely competitive, as buyers possess strong purchasing power with products that are highly standardized, with many competitors readily available. Thus, Vershire’s strategy must be Cost Leadership. Each year, Vershire undergoes a series of budget planning, control, and assessment processes in order to remain competitive and efficient. However, each domain has problematic aspects that may detriment the company as a whole.

Vershire’s Aluminum Can Division is centralized with little integration. The Division General Manager is responsible for everything except for the raising of capital and labour relations, which are centralized at head office. The Division General Manager oversees the Manufacturing and Marketing Managers heading Vershire’s seven plants and fifteen districts.

        Vershire’s Sales Budget operates like an Investment Centre, holding the Division Marketing Managers responsible to deliver the figures fixed by head office. As an Investment Centre, it uses Return on Investment (ROI) to measure performance. Vershire’s Manufacturing Budget also operates like an Investment Centre. The engineering department manages the cost items and performance standards for each plant, and the Plant Managers are held responsible for meeting their plant’s share of the budgeted sales.

Budget Planning Weaknesses and Improvements:

        Vershire’s organizational structure is centred around its budgetary planning process, which transfers back and forth from upper to lower management from May to December, before it is presented to the Board of Directors. This is to be expected from a company with a Cost Leadership strategy, however, it should not be the only gauge of operations. The process implements several assumptions such as price, change in accounts, weather conditions, market growth, and the introduction of new products, in order to build sales forecasts and manufacturing budgets for the year. This is inherently risky for large, centralized companies. As the budget ascends the chain of command, the numbers become less flexible to change, as everyone must be consulted, reducing Vershire’s ability to adjust to unforeseen circumstances.