Magellan Materials manufactures metal and plastic gutters for use in commercial and residential construction. Production occurs in two separate plants. Distribution is from a central warehouse, and there is a centrally managed sales office. Both production plants are currently treated as cost centers, and their budgets are prepared in close consultation with the central office. Analysis of standard cost variances is used as a control mechanism in the two plants.
Required:
a. Explain how budgets and variance analysis provide a means of controlling cost in the production plants.
b. List four non financial performance measures that plant managers can use to assess the operations they control.