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Ciba Geicy --------------------------------------------- Ciba had strong SwissGerman roots and was a highly centralized company with most management functions performed either at corporate headquarters or in large country organizations Corporate headquartersand the country organizations had large groups that provided common services to the operating units Operating units were evaluated based on direct contribution and little effort was made to allocate centralservices costs to the various lines of business This organization structure provided limited line-of-business information In 1983 Ciba-Geigy used a matrix organization Oneside of the matrix was seven product divisions divided into a total of 41 strategic business units The other side of the matrix was 120 group companies responsible for a specific geographical area In largecountries there were multiple group companies Many group companies had responsibility for sales and production and the larger group companies also controlled their own research and development At the time of their merger in 1971 Ciba and Geigy chose accounting methods that they thought best presented their true economic picture They felt that the merger would reduce resistance to new accounting methods since the merger required some changes anyway They decided to use Current Cost Accounting for fixed assets and inventories They felt that current cost isolated fictitious profits resulting from subtracting historical costs from current revenues in the income statement They also used direct costing that included only variable production costs in inventory and cost of goods sold Fixed production costs were charged directly to the income statement They preferred directcosting because profits varied more directly with sales Also net income cannot be manipulated by build-ing or depleting inventories as it can be in full costing For divisions Ciba measured division performance by contribution and a contribution-based performance factor All of a divisions variable expenses were subtracted from revenue to give divisionalmarginal contribution Transfer prices were of little significance since local management was evaluated ondirect costs alone Fixed costs variances and
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