The Evander Company has operated a comprehensive budgeting system for many years. This system is a major component of the company's program to control operations and costs at its widely scattered plants. Periodically the plants' general managers gather to discuss the overall company control system with the top management.
At this year's meeting the budgetary system was severely criticized by one of the most senior plant managers. He said that the system discriminated unfairly against the older, well-run and established plants in favor of the newer plants. The impact was lower year-end bonuses and poor performance ratings. In addition, there were psychological consequences in the form of lower employee morale. In his judgment, revisions in the system were needed to make it more effective. The basic factors of the company's budget include the following:
(a) Announcement of an annual improvement percentage target established by top management
(b) Plant submission of budgets implementing the annual improvement target
(c) Management review and revision of the proposed budget
(d) Establishment and distribution of the final budget
Required:
(1) Evaluate the manufacturing manager's views.
(2) Equitable application of a budget system requires the ability of corporate management to remove "budgetary slack" in plant budgets. Discuss how each plant could conceal "slack" in its budget.