1.

POINT

OF

VIEW: The case will be analyzed from the standpoint of the Chief

Controlling Officer from the companys head office. The controller staff/team
supports the relationship between plants and headquarters allowing them
direct communication with the managers and company executives.
2. STATEMENT OF THE PROBLEM: What changes does Vershire Company need
to make in its Management Control Structure in order to align manager
responsibilities with division and corporate objectives?
3. ANALYSIS: The Budgetary Control System of Vershire Company
encouraged the involvement of division, as well as corporate managers,
allowing comprehensive planning and forecast for each division. The
preliminary reports were prepared by divisional general managers, which
were then evaluated by research staff from headquarters to develop the
sales forecast for each division. The forecasts were then forwarded to their
respective division for fine-tuning and improvements, with the help of the
divisions corresponding district sales manager. The participation of each
division promotes commitment toward the budget, which is further
reinforced by visits by controller staff from the head office.
Vershire Companys Performance Measurement and Evaluation System
focused mainly on net sales, including price and mix changes, grow margin
and standard manufacturing costs. Plant managers were incentivized when
they accomplished their profit goals: promotions of managers were based on
profit performance and compensation packages were tied to achieving profit
budgets. As such, the manufacturing division of Vershire Company was
treated as a profit center; whereas, plant managers were responsible for the

budgeted profit results.

However, managers should only be responsible for measure they can control.
Plant managers are engaged in manufacturing, so their jurisdiction concerns
management of costs. Furthermore, Vershire Company takes precedence on
the demands of the sales department (against the production department) in
its desire to retain and satisfy customers; this reduces the plant managers
control on manufacturing efficiency due to the sales managers disruption of
the plants production schedule.
4. RECOMMENDATION: Vershire Company needs to treat its plants not as profit
centers, but as expense centers. While profit involves revenues and
expenses, revenues are more influenced by the activities of the sales
department, whereas expenses mainly result from activities in
manufacturing/production.
The company also needs to amend the method in which they evaluate the
performance of their plant managers. The promotion and compensation
package of plant managers is based on profit performance. Plant managers
can only directly control costs; thus, the current system of performance
evaluation would encourage plant managers to focus on increasing profit and
could result to incongruence of objectives (to produce quality products) by
compromising standards from choosing low cost materials and labor.