Short financial essay about the drugs company Ciba Geicy.

Essay by wonderboy December 2003

download word file, 2 pages 3.8

Ciba Geicy


Ciba had strong Swiss/German 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


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 division's variable expenses were subtracted from revenue to give

divisionalmarginal contribution. Transfer...