The Noton 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 Noton's budget include:

1. Announcement of an annual improvement percentage target established by top management.

2. Plant submission of budgets implementing the annual improvement target.

3. Management review and revision of the proposed budget.

4. Establishment and distribution of the final budget.

To support his argument, he compared the budget revisions and performance results. The older plants were expected to achieve the improvement target but often were unable to meet it. On the other hand, the newer plants were often excused from meeting a portion of this target in their budgets. However, their performance was usually better than the final budget.

He further argued that the company did not recognize the operating differences which made attainment of the annual improvement factor difficult, if not impossible. His plant has been producing essentially the same product for its 20 years of existence. The machinery and equipment, which underwent many modifications in the first five years, have had no major changes in recent years. Because they are old, repair and maintenance costs have increased each year, and the machines are less reliable. The plant management team has been together for the last ten years and works well together. The labor force is mature, with many of the employees having the highest seniority in the company. In his judgment, the significant improvements have been "wrung out" of the plant over the years and that merely keeping even is difficult. For comparison he noted that one plant opened within the past four years would have an easier time meeting the company's expectations. The plant is new, containing modern equipment that is in some cases still experimental. Major modifications in equipment and operating systems have been made each year as the plant management has obtained a better understanding of the operations. The plant's management, although experienced, has been together only since its opening. The plant is located in a previously nonindustrial area and therefore has a relatively inexperienced work force.

Required:

(a) Evaluate the manufacturing manager's views.

(b) 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.