Assessment of Vershire Company's Planning and Control System

To: CEO

From: Chief Controller

Subject: Assessment of Vershire Company’s planning and control system

We have identified the major strengths and weaknesses of the company’s planning and control system. In line with this, it is recommended that plants be viewed as expense centers and not profit centers because plant managers are only able to influence cost and not sales.

Strengths

One of the key strengths of Vershire’s planning and control system is its all-inclusive budgeting process. The comprehensive forecasting of sales encourages active involvement of both corporate and division levels in formulating a sales budget that is acceptable for all levels of the company. It also helps the company predict market conditions and anticipate long-term capital expenditures. The regular visits of controller staff to plants also ensure that plant budgets are more accurate and complete; moreover, these visits help the controllers become familiarized with the budgets which will be presented to corporate management.

Another strong point in Vershire’s control system is that plants are required to have detailed variance analysis sheets every month. Supplementary reports are also submitted to better explain the results. These reports are available to interested management and are distributed the following morning.

Versihire’s decentralized organizational structure is also commendable. Division managers have full control over their division. This makes each division more efficient due to faster decision-making. It also enables managers to take responsibility for the performance of the division.

Areas for Improvement

The main flaw of the system is that Vershire treats its plants as profit centers, rather than expense centers. Plant managers are

...