Peoria Engine Plant (A)

Describes the cost control system used at an automobile engine plant for labor and overhead costs. The finance staff prepares daily, weekly, and monthly variance reports against budgets. Department supervisors, finance staff, and the plant manager discuss the use and interpretation of these reports. Also describes the company's budgeting procedures which include a performance improvement factor to motivate annual productivity gains and cost reductions. Allows the class to discuss whether the extensive and detailed variance analysis systems promote valuable managerial objectives such as cost control, learning, and improvement. A big issue is whether an emphasis on meeting short-run budgets inhibits longer-term improvements in quality and productivity.