Budgeting Process and Performance Analysis of Vershire

Company Description and Background

Vershire Company is a diversified packaging company with a variety of big divisions. The most well-known segment, its Aluminum Can division is among the biggest producers of aluminum beverage containers across the United States. This case examines the budgeting process as well as an analysis of the performance of Vershire. One of the main concerns for Vershire is satisfying its clients since the majority of clients have multiple suppliers available, which means that Vershire is able to be substituted if the client’s expectations regarding quality, price, or services aren’t fulfilled. Therefore efficiency and cost-effectiveness are the top priorities for Vershire. The major issue facing Vershire lies in the fact that they treat plants as profit centers rather than expense centers which is an unproductive measure of the performance of manufacturing facilities.


  1. Vershire Company’s Planning System


  • Managers of divisions submit reports that forecast the outlook for capital and sales requirements five years in the future as a component of the plan. This shows that the business is prepared for the future and its capacity to establish long-term objectives
  • Sales forecasting is formulated on a corporate scale and then distributed to divisional managers to analyze and refine. This results in more accurate and real figures since the managers are aware and understand how each line works individually
  • Prior to the presentation of budget plans, the controller team at the headquarters visit each plant to assess the operations in place and provide plant managers the chance to discuss their current situation and the justification for their numbers, thus increasing the efficiency and reliability of these documents.


  • Corporate headquarters are based on assumptions about brand new goods, the creation of plant and inventory carry-overs forward buying, packaging trends even though divisional leaders are accountable for the management of the division. This reduces the accuracy of forecasts and lowers effectiveness because of the corrections needed when reviewing
  • Every division line uses the identical method of forecasting regardless of size. This puts a strain on the accuracy of forecasts due to the diverse customer base products, demands, and products every line has
  • District managers set the sales budgets, not the plant managers, despite the fact that it is the responsibility of plant managers to accomplish the objective and is linked to their performance reports

Vershire Company’s Controlling System


  • Divisional managers have complete control of their own business except for capital raising and labor relations, which are centralized at the head office. This gives divisional managers to make choices that are specific to their individual goals.
  • Easy and quick communications between all levels of the company since there are a few levels within the division
  • Consistent efforts to meet the budget of the business as negative variances must be notified every day by plant managers, and spreadsheets of variance analysis are prepared each month.


  • Vershire concentrates on profit for monitoring the performance of plant managers and also calculating bonuses. The analysis tool is not effective as there are many other factors that contribute to the efficiency of plant managers.


Divisional General Managers create an initial report that outlines the prospects for income, sales, and capital expenditures for the coming budget year. They also evaluate potential trends for the next two years for corporate management.

  • Reasons Divisional General Managers possess the most understanding of their region and are better prepared to draft these documents. It also gives a notion of areas where production could be improved.

Central Market Research staff develops an official market analysis, which examines the upcoming budget year in-depth and the next two years ‘ performance in broad terms.

  • Reasons: Uses the information that is provided by divisional managers to provide an even more detailed and refined market analysis

Central Market Research staff develops distinct sales forecasts for each division as well as a projection for all the organization.

  • The economic environment and its effect on customers and market share of different product types based on geographical regions are considered.
  • The fundamental assumptions are made about the price of new products, new products, adjustments to particular account numbers, the creation of new factories, etc. in order to create forecasts.
  • Basis: Promotes uniformity in the formula of all sales forecasts. Determines areas to improve, and evaluate areas where market share is likely to increase and ensures that the overall sales forecasts of corporations were realistic and achievable.

Divisional Managers prepare their own sales forecasts from the bottom with the input of District Sales Managers. This information is presented for review by the Vice Marketing President.

  • Reasons Review of the head office’s forecast for sales and note any changes or other investments required. District managers’ contributions are used since they’re the ones who are most familiar with sales (more precise estimates)

Vice President of Marketing reviews the consolidated sales forecasts and sends them to the company level

  • There are no changes implemented unless the district director has decided who was the original person accountable for the forecast
  • Basis: Ensures the forecasts accurately reflect the expertise of the district director as well as the vice-president of marketing

The process is repeated at levels at the company level (approval from the District Manager, if required) until the budget numbers are approved and the budget becomes an objective that is fixed.

  • Basis: Ensures that every level of the organization are agreeing with the figure that has been calculated and ensures that the budget is adequate to reach the goals of the company.

The overall sales budgets are divided and translated in accordance with the plant from which the final products will be delivered and shipped to Plant Managers

  • Reasons: Sales budgets are given to these plants since they’re the ones who generate revenue.

Plant Managers then classified the budget in accordance with price, volume, and the end usage

  • Once classified, plant managers will budget to account for the gross profits, fixed costs, and pre-tax income
  • Request assistance to assist the Industrial Engineering Department to develop cost-cutting strategies
  • Reasons: All cost standards and targets for cost reduction are designed through Industrial Engineering, therefore, it ensures that numbers are consistent and fair for input

Prior to submitting budgets the controllers go to each plant and discuss plans with the managers (usually is about one-half day) until the budget is approved and submitted to the Division Head Office

  • Reasons: Gives opportunity for plant managers to rationalize their figures


  1. The Division Head office reviews the budget and can be able to return it to the Plant Managers if a discrepancy is discovered
    • The plant manager should be asked to find any other savings if the budget isn’t on par with expectations.
    • Once it’s finalized the budget will be delivered to the Chief Executive Officer.
  • Reasons: Due to the plant manager’s direct involvement in the operations of the plant it is imperative to make any adjustments to make savings


  1. The Chief Executive Officer may make changes to the budget as needed up to the point that the budget is submitted for approval by the Board of Directors for final budget approval.
    • Final review, and check that the budgets are appropriate to the corporate objectives
  1. Plant managers shouldn’t assume the entire responsibility for profits since they can’t be in control of all aspects of the product’s performance. Because profit is calculated by expenses minus revenue and plant managers are only accountable for the costs, which they are able to be in control of. This is a matter of direct material and labor, as well as variable manufacturing overhead, and fixed overhead budgets. Revenues are generally managed through the department of sales, which is responsible for the pricing mix of sales, the price, and delivery times of goods. Additionally, because the sales manager’s view is always favored over that of the plant manager because they want to please the client, it adversely impacts the ability of the plant manager to monitor the profit and effectiveness of production costs.
  2. In Exhibit 2 Exhibit 2 method focuses on the profit of Vershire that includes revenue and expenses. Because plant managers have no influence over the revenue side of the products, the information is not a good way to evaluate the effectiveness and efficiency that the facility. Variations in sales prices and sales mix, as well as the number of sales sold, are managed by the sales department, with no input from plant managers thus rendering the data unreliable and unimportant.

In Exhibit 3 The individual plant reports provide greater detail on the variation on Exhibit 2. It is also true that it doesn’t provide a complete depiction of the performance of the plant since it incorporates factors that are beyond the control of the plant manager like sales. In the case of reports for divisions the comparative analysis is based on net sales, while the Comparative Manufacturing Efficiency Analysis compares different sizes of plants that make different kinds of products, which makes an unreliable and inaccurate source of information.

One suggestion Vershire’s management team is to change the way that bonuses are awarded to plant managers because the current systems of measurement do not accurately reflect the performance of employees enhance comparisons of manufacturing efficiency among different plants because of the different sizes and products offered by each plant, and increase communication between the different levels so that errors are minimized corrections as well as time in budget evaluations. Some possible solutions are to hold meetings that include all managers as well as the company’s top management to talk about the performance of the company and compare the performance of managers with cost-cutting measures to calculate bonuses, and then develop a universal measurement system to effectively compare different plants.


In the end, Vershire Company should reconfigure its measurement systems so that it can truly evaluate the performance of the company. It should also begin treating its manufacturing facilities as expense centers rather than profit centers. Thus, Vershire can collect more precise and reliable data to use in achieving its objectives.

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