Case 4 1 VERSHIRE COMPANY GROUP 1

Topics: Generally Accepted Accounting Principles, Management, Budget Pages: 32 (1710 words) Published: February 5, 2015
Case 4-1
Vershire Company

In 1996, Vershire Company was a
diversified packaging company with
several major divisions, including the
Aluminum Can Division- one of the
largest manufacturers of Aluminum
beverage cans in the United States.

The Aluminum Can division‘ s growth
in sales slightly outpaced sales growth
in the industry at large. The division
had plants scattered throughout the
United States. Each plant served
customers in its own geographic
region, often producing several sizes of
cans for a range of customers that
included both large and small
breweries and soft drink bottlers.

Most of these customers had between two
and four suppliers and spread purchases
among them. If the division failed to meet
the customer‘ s cost and quality
specifications or its standards for delivery
and customers service, the customer
would turn to another supplier. All
aluminum can producers employed
essentially the same technology, and the
division’s product quality was equal to that
of its competitors.

Industry Background
• Traditionally, containers were made from one of
several materials: aluminum, steel, glass, fiberfoil(paper and metal composite), or plastic. • The metal container industry consisted of the
hundred-plus firms that produced aluminum and tinplated steel cans. • Aluminum cans were used for packaging
beverages(beer and soft drinks), while tin- plated
steel cans were used primarily for food packaging,
paints, and aerosols.

• In 1970, steel cans accounted for 88% of the metal
can production, but by 1990s, aluminum had come to
dominate the industry.
• In 1996, aluminum cans accounted for over 75% of
metal can production. The sot drink bottlers who
purchased the containers were primarily small
independent franchisees of Coca-Cola and Pepsi Cola,
which represented their independent bottlers in
negotiating terms with the container companies.
• Most beverage processors maintained two or more
suppliers; and some processors integrated backward,
manufacturing cans themselves.

• One large beverage company produced one- third of
its own container requirements and ranked as one of
the top five beverage container producers in the
industry.
• Aluminum had other advantages over steel:
1. It was easier to shape.
2. It reduced the problems of flavoring.
3. It permitted more attractive packaging because it
was easier to lithograph
4. It reduced transportation costs because of its lighter
weight.

• Additionally, aluminum was more attractive recycling
material, with a ton of scrap aluminum having three
times the value of a ton of scrap steel.
• Four global companies supplied aluminum to can
producers: Alcoa, Alcan, Reynolds, and Kaiser. Three
of these companies (Alcan, Alcoa, and Reynolds), also
manufactured aluminum containers.

Questions
1. Outline the strengths and weaknesses of Vershire
Company’s planning and control system.
2. Trace the profit budgeting process at Vershire,
starting in May and ending with the Board of
Directors’ meeting in December. Be prepared to
describe the activities that took place at each step
of the process and present the rationale for each.
3. Should the plant managers be held responsible
for profits? Why or why not?

4. How do you assess the performance evaluation
system contained in Exhibit 2 and 3?
5. On balance, would you redesign the management
control structure at Vershire Company? If so, how and
why?

1. Outline the strengths and
weaknesses of Vershire
Company’s planning and control
system.

Vershire’s planning system:
Strengths
o When formulating the sales budget, divisional
managers are required to predict market
conditions and capital expenditures.
o The frocasting is done at the corporate level and is
then sent to the divisional managers for finetuning.
o Corporate controllers visit each plant for half a day
prior to the final submission of the budget.

Weakness
o The initial...
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