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Curriculum Center Browse Bibliography Build EPacket Pricing Structure Distribution Process Management Control in Nonprofit Organizations
 
Zumwald, A.G.
Author(s):
Merchant, Kenneth A.
Van der Stede, Wim A.
Functional Area(s):
   Management Accounting
   Organizational Behavior
Setting(s):
   For Profit
Difficulty Level: Beginner
Pages: 3
Teaching Note: Available. 
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First Page and the Assignment Questions:
In August 2002, a pricing dispute arose between the managers of some of the divisions of Zumwald A.G.. Mr. Rolf Fettinger, the company's managing director, had to decide whether to intervene in the dispute.

THE COMPANY

Zumwald A.G., headquartered in Cologne, Germany, produced and sold a range of medical diagnostic imaging systems and biomedical test equipment and instrumentation. The company was organized into six operating divisions. Total annual revenues were slightly more than €3 billion.

Zumwald managers ran the company on a highly decentralized basis. The managers of each division were allowed considerable autonomy if their performances were at least on plan. Performance was evaluated, and management bonuses were assigned, based on each division's achievement of budgeted targets for return on invested capital (ROIC) and sales growth. Even though the company was partly vertically integrated, division managers were allowed to source their components from external suppliers if they so chose.

Involved in the dispute mentioned above were three of the company's divisions: the Imaging Systems Division (ISD), the Heidelberg Division (Heidelberg), and the Electronic Components Division (ECD).

•    ISD sold complex ultrasound and magnetic resonance imaging systems. These systems were expensive, typically selling for €500,000-1 million.

•    Heidelberg sold high-resolution monitors, graphics controllers and display subsystems. Approximately half of its sales were made to outside customers. ISD was one of Heidelberg's major inside customers.

•    ECD sold application-specific integrated circuits and subassemblies. ECD was originally established as a captive supplier to other Zumwald divisions, but in the last decade its managers had found external markets for some of the division's products. Because of this, ECD's managers were given profit center responsibility.

Assignment

1.    What sourcing decision for the X73 materials is in the best interest of:

a.    The Imaging Systems Division?
b.    The Heidelberg Division?
c.    The Electronic Components Division?
d.    Zumwald A.G.?

2.    What should Mr. Fettinger do?