...Case Analysis : Zumwald AG Zumwald AG is a German company specialized in the production and retail of medical equipment. In August 2002, the launch of a new ultrasound imaging system, X73, triggered a transfer pricing dispute between two of its six divisions, ISD and Heidelberg. A third division, ECD is indirectly involved because it usually provides some components to Heidelberg. The origin of the dispute between Heidelberg and ISD is the choice of supplier for some components of the X73. Zumwald has a culture of being highly decentralized : it is organized in six operating divisions and partially vertically integrated however the company policy is to let division managers choose their suppliers internally or externally. Nonetheless, in the case of the X73, the division manager of Heidelberg, Paul Halperin, challenges the choice made by ISD managers to supply themselves externally for obvious cost-‐‑based motivations. The managing director of Zumwald, Mr. Rolf Fettinger, is asked to help settle the dispute. The situation is very tricky for Mr. Fettinger. Indeed, freedom of sourcing has been the policy of the company as of now and a settlement in favor of Heidelberg could create a disturbing precedent...
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...The starting point of the analysis it to find out what is best for the single divisions and what is best for Zumwald AG as a whole instead. In order to do so, I examined the cost structure of the various divisions and made a contribution analysis under the two possible scenarios: 1) ISD outsourcing from Display Technologies Plc; 2) ISD sourcing internally from Heidelberg. As shown below in exhibits 1, 2 & 3, Zumwald AG clearly benefits from internal sourcing. The difference is €63100 of lost contribution in case of outsourcing. Heidelberg’s and ECD’s orders would be lost under this scenario. On the other hand, ISD is better off with the outsourcing option, achieving €39500 in savings. Alternatively, the same outcome can be found analyzing the cash outflows for Zumwald AG under the two viable options (see exhibit 4 below). If sourcing internally, the cash outflow is given by the combined VC for Heidelberg and ECD, which amount to €37400. Conversely, if outsourcing, the cash outflow is simply given by the price offered by the supplier. Any transfer price greater than €37400 would lead to a positive contribution for Heidelberg and/or ECD. Different total contribution allocations would depend by the internal transfer prices for the divisions. Therefore, Mr. Fettinger must deal with the dispute and be sure that the interests of the various managers are aligned towards the common wellbeing of the firm. Given the current organizational structure and the responsibilities...
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...Zumwald AG Management Accounting Background: Zumwald AG, 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 manages 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. In August 2002, a pricing dispute arose between the managers of 3 of the divisions of Zumwald AG: Imaging Systems Division (ISD), the Heidelberg Division (Heidelberg), and the Electronic Components Division (ECD). The case describes a transfer pricing issue that is common in decentralized, divisionalized firms. The case raises issues about internal pricing and, more generally, the operation of a decentralized management structure. Analysis 1: If we see the facts that came out in ensuing the discussion: [pic] It is obvious why ISD take Display tech as their supplier, a total cost difference of € 39,500. Thus, Heidelberg price would result...
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... 2nd April, 2014 ZUMWALD CASE ANALYSIS On analysis of Zumwald’s structure, it can be concluded that it is partly vertically integrated with conflicts of interest with in divisions regarding supply. To provide a solution to this scenario we need to look at the contribution margin since fixed costs are irrelevant and also at the most profitable option for the company as a whole. Also considering the suppliers here, Zumwald has no relationship with Display Technologies Plc previously and we have no idea about the quality since it is trying to aggressively compete with prices. Relatively, Bogardus NV has a good relationship with Zumwald and is known for its quality products. BUT to come across a cost based benefit scenario for Zumwald let us consider Display Technologies, which provides low...
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...Zumwald case – session 4 The case is about a pricing dispute between the managers of two divisions of Zumwald AG, a german firm that produces and sells medical diagnostic imaging systems and biomedical test equipment. The company is very decentralized with large autonomy for each division. For instance, division managers are allowed to source their components from external suppliers. The case is rightly about the autonomy concerning sourcing, especially between ISD’s managing director Conrac Bauer and Paul Halperin, Heildelberg’s general manager. Indeed, the dispute was caused by ISD’s choice to buy from an external supplier and not Heildelberg for some components of its new product the X73. Conrac Bauer chose the external firm because its price was lower than Heildeber in order to ensure a decent Return on investment. Arguments of the main actors: * Conrac Bauer (ISD): * Heildeberg price are not aligned on the market * Conract Bauer thinks only about his ROI * Paul Halperin (Heildeberg) : * Solidarity in the company * Heildeberg engineers participated in the design of X73 with no-mark-up over costs * Heildeberg also needs to earn a decent ROI In short terms, if Zumwald wants to make profits, ISD needs to buy its components from Display Technologies PLC in order to maximize its ROI. Nevertheless, in a long-term analysis, we can consider that Display Technologies PLC prices will increase in the future (its aggressive pricing strategy...
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...KTH Homework assignment ME2028 Behavioral Management Control Andreas Torbiörnsson 09 How could each of the control problems at Leo´s Four-Plex Theater be solved with the use of Cultural control? Cultural control is a type of control that encourages mutual monitoring1 and it builds a lot upon group pressure. The main idea of cultural control is to get the employees to watch over each other and to create a culture that has certain things that you specifically do or don’t do. It aims to set up shared beliefs and norms in that company, rules of behaving that everyone abides by. The case of Leo’s Four-Plex Theater has a number of control problems that I can identify. They are as follows: Discrepancies in the cash counts of the ticket booths. Most likely caused by a lack of motivation that leads to employee theft and neglecting of duties. The employees working in the refreshment stand sometimes do not collect cash from customers or doesn’t register the sale on the cash register. This is also most likely caused by a lack of motivation, it can’t be lack of direction since they know what they should do and neither could it be a personal limitation since they know how to operate the machine and how to collect payment. The problem seems to be that they don’t know why they should collect the cash. Test counts reveal that the number of tickets sold or put into the stub box isn’t equal to the amount of customers entering and leaving the theater. This seemed to be caused by three...
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...Management control systems rk assignment ME2028 Behavioral Management Control Andreas Torbiörnsson 09 How could each of the control problems at Leo´s Four-Plex Theater be solved with the use of Cultural control? Cultural control is a type of control that encourages mutual monitoring1 and it builds a lot upon group pressure. The main idea of cultural control is to get the employees to watch over each other and to create a culture that has certain things that you specifically do or don’t do. It aims to set up shared beliefs and norms in that company, rules of behaving that everyone abides by. The case of Leo’s Four-Plex Theater has a number of control problems that I can identify. They are as follows: Discrepancies in the cash counts of the ticket booths. Most likely caused by a lack of motivation that leads to employee theft and neglecting of duties. The employees working in the refreshment stand sometimes do not collect cash from customers or doesn’t register the sale on the cash register. This is also most likely caused by a lack of motivation, it can’t be lack of direction since they know what they should do and neither could it be a personal limitation since they know how to operate the machine and how to collect payment. The problem seems to be that they don’t know why they should collect the cash. Test counts reveal that the number of tickets sold or put into the stub box isn’t equal to the amount of customers entering and leaving the theater. This seemed...
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...------------------------------------------------- Course OutlineDepartment of Accounting and FinanceSchool of Business and Economics | ACCT 4250-01 Advanced Management Accounting (3,0,0) MWF 1:30-2:20 PM A&E 208 Instructor: Dr. Laura Jean Kreissl Office: IB 2060 Office Hours: please check office door Email: lkreissl@tru.ca Email is strongly recommended over voicemail as it is checked more frequently Phone/Voice Mail: 250-852-7675 Last Updated: November30, 2015 Calendar Description Building on ACCT 3250: Intermediate Management Accounting, students explore the integrative and interdisciplinary role of management accounting and its contribution to the strategic management process and the provision of quantitative and non-quantitative information for planning, control, and decision making. Topics include management control systems; results controls, action, personnel and cultural controls; control system tightness; control system cost; designing and evaluating management control systems; financial responsibility centers including transfer pricing; planning, and budgeting; incentive systems; financial performance measures; the myopia problem; uncontrollable factors; corporate governance; and ethical issues. | Educational Objectives/Outcomes Upon completing this course, students will be able to: 1. Locate the role of Management Control Systems (MCS) in both strategy and operations. 2. Describe results control and its applications. ...
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...Syllabus Certified General Accountants Association of Canada 100 – 4200 North Fraser Way Burnaby, British Columbia Canada V5J 5K7 www.cga-canada.org © CGA-Canada, 2013 All rights reserved. These materials or parts thereof may not be reproduced or used in any manner without the prior written permission of the Certified General Accountants Association of Canada. Printed in Canada ISBN for an individual volume: 978-1-55219-599-4 About CGA-CANADA _________________________________________ CGA-Canada today The CGA designation focuses on integrity, ethics, and the highest education requirements. Recognized as the country’s accounting business leaders, CGAs provide strategic counsel, financial leadership, and overall direction to all sectors of the Canadian economy. The Certified General Accountants Association of Canada — CGA-Canada — sets standards, develops education programs, publishes professional materials, advocates on public policy issues, and represents CGAs nationally and internationally. The Association represents 75,000 CGAs and students in Canada, Bermuda, the Caribbean, Hong Kong, and China. Mission CGA-Canada advances the interests of its members and the public through national and international representation and the establishment of professional standards, practices, and services. A proud history CGA-Canada was founded in Montréal in 1908 under the leadership of John Leslie, vicepresident of the Canadian Pacific Railway. From the beginning, its objective...
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