Problem:
The Marmon Group, Inc., embodies nearly all of the reasons why management accounting is a vital and growing function in today’s leading companies. Marmon, headquartered in Chicago, is an international association of more than 100 manufacturing, distribution, and service companies with annual revenues in excess of $6.4 billion. It is one of the 20 largest privately held companies in the United States. Because operations are spread out in more that 40 different countries with thousands of diverse products and services (such as workers’ gloves, water coolers, railroad tank cars, medical products, and credit services for banks), managers at Mormon make extensive use of management accounting information when undertaking important decisions.
What exactly is the role of management accountants at Marmon? According to Jim Smith, Marmon’s former director of cost management, “The role of the management accountant is changing dramatically in most of our companies.” In the past, Marmon’s management accountants were basically clerical workers who spent most of their time analyzing monthly cost variances. Now, however, Marmon’s management accountants work closely with operating and sales managers, providing cost information in a format that makes sense to those managers. Says Smith, “In the past few years the management accountant has become much more of a financial and business strategy adviser to senior management. Operating and sales managers are demanding meaningful cost information, and management accountants are helping them see how their actions affect costs and the bottom line.”
Management accountants have become more important to Marmon, according to Smith, because recessions and foreign competition over the past ten years have awakened the understanding in most managers that managing cost is an important function. Knowing what a product truly costs or the cost of servicing a particular customer has become essential to Marmon’s profitability.
“To help manage cost,” says Smith, “accountants and managers are shying away from using one cost, often the cost used for financial reporting purposes, as the only important cost.” Instead, they are now using costs calculated for the decision at hand. As Smith indicated, “Depending on the decision, any of the cost methods described in Introduction to Management Accounting are relevant.” He believes this is a very positive change, “since it allows and, in fact, requires the management accountant to understand all of the functions in a business and how each one adds value to the product or service.”
Source: The Marmon Group Web site (https://www.marmon.com)
1. Discuss how accountants at Marmon can act as internal consultants.
2. What kind of background and knowledge would an accountant require to be an effective internal consultant?
3. Data gathered by accountants is not only used internally, but externally as well. Describe ways in which information gathered by accountants at Marmon and other corporations is used by individuals and organizations outside of the company?