Lipton Case Review - Mba Managerial Accounting Essay

2372 Words Mar 20th, 2012 10 Pages
Executive Summary
Detailed analysis of Lipton’s current Economic Profit model has prompted immediate changes to how profit is recorded on the Product Line level.
Proposed changes to the current Economic Profit include: I. Leave the Working Capital Cost and CRV Depreciation Adjustment in the profit analysis II. Eliminate the Fixed-Asset Charge and OI&D III. Only apply New Product Development charges to new products
Goals of these proposed changes: * Ensure product line managers are focused on improving the value of their product, not just on profit/loss numbers * Allow upper management to analyze product line performance on a level playing field * Provide divisional management with the unbiased authority to
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| Fixed Assets include all of the facilities, machinery and other long term fixed assets used to produce Lipton food products. | Fixed Assets include all of the facilities and other long term assets used by general management. | ASSIGN | Determine which beverage product lines use a particular fixed asset. | Determine which food product lines use a particular fixed asset. | Assign fixed assets to appropriate general management offices worldwide. | EVALUATE | Calculate a percentage of each FA cost to a particular product line. Evaluate at an upper management level. | Same upper management evaluation as the beverage division, but for the food product lines. | Determine % and value of fixed asset costs to each reporting management entity. | IMPROVE | * Share results with product line managers * Are there any red flags associated with a product line? * Use information to minimize costs by properly utilizing FA across both divisions. | * Are there any red flags? * Review FA cost on a division and company level |

Big Picture Goal: Assign Total Fixed Costs to each Division
Added Benefit: Discover product line contribution to Fixed Asset Costs and cost minimization. Allocations can

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