| Zumwald, A.G. |
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| Management Accounting |
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| Organizational Behavior |
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Beginner |
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3 |
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Available.
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$9.00
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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?
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