The Conversion Cycle
Tranform input resources, RM, Labor, and OH into FG
products or services for sale
Consists of tow subsystem
Physical actvities - the production system
Information system - the cost accounting system
Conversion Cycle in Relation to other cycles
Marketing system -> sales forecast -> coversion
cycle
Revenue cycle -> sales orders -> conversion cycle
Conversion cycle -> purchase requisitions, labor
usage -> expenditure cycle
Conversion cycle -> WiP, FG -> Gen. Ledger and FR
system
Production System
Involves the planning, scheduling, and control of the
physical product through the manufacturing process
Determining RM requirements
Authorizing the release of RM into production
Authorizing work to be conducted in the
production process
Directing the movement of work through various
stages of production
Production methods
Continuous processing
Creates a homogeneous product through a
continuous series of standard procedures
Batch processing
Produces discrete group(batches) of products
Make-to-Order Processing
Involves the fabrication of discrete products in
accordance with customer specifications
Overview: Traditional Batch Production Method
Consists of four basic processes
Plan and control production
Perform production operation
Maintain inventory control
Perform cost accounting
Batch Production System
Production Planning and control
Material and operations requirements
Production scheduling
Materials and Operations requirements
Material requirements
The diff between what is needed and what is
available in inventory
Operation requirements
The assembly and/or manufacturing activities
to be applied to the product
Production Scheduling
Coordinates the the production of multiple
batches
Influenced by time constraints, batch size and
other specification
Work Centers and Storekeeping
Production ope beg, when work centers obtain
RM from storekeeping
Ends with completed products being sent to FG
warehouse
Inventory Control
Objective
Minimize total cost
Provides production planning and control with
status
Continually updates the RM during production
Upon completion, updates FG inv
EOQ inventory model
Simple to use, but ASSUMPTION ARE NOT ALWAYS
VALID
Demand is know and constant
Ordering lead time is KnC
Total cost per year of placing orders decreases as
the order quantities increases
Carrying Cost of inv increases as the quantity of
orders increases
No quantity discounts
Info: Docs in the Batch Production System
Sales Forecast
Expected demand for the FG
Production Schedule
Production plan and authorization to produce
Bill of Materials (BOM)
Specifies the types and quantities of the RM and
subassemblies used to produce a single FG unit
Route Sheet
Details the production path a particular batch will
take in the manufacturing process
Sequence of ope
Time allocated at each station
Work Order
Uses the BOM and route sheet to specify the
exact mat and production processes for each
batch
Move Ticket
Records work done in each work center and
authorizes the movement of the batch
Mat Requisition
Authorizes the inv warehouses to release RM for
use in the prod process
Cost Accounting System
Record the Fin effects of the events occurring in the
production process
Initiated by the work orders
Cost accounting clerk creates a new cost record for the
batch and files in WiP file
The records are updated as M and L are used
Internal Controls
Work orders
Reflects a legitimate need based on slaes forecast
an the FG on hand
Move ticket
Signatures from each station authorize the
movement of the batch through work centers
Materials requisitions
Authorize the warehouse to release materials to
the work centers
Segregation of duties
Production and planning and control dept are sep
Inv control is sep from mat streroom and FG
Cost accounting function accounts for WiP and
should be sep from the Work centers in the prod
process
Supervision
Work centers supervisors oversee the usage of RM
to ensure that all mat are used and minimize waste
Employee time cards and job tickets are checked for
accuracy
Access control
Direct access to assets
Controlled acces to stprerpoms, prod work
center, FG warehouse
Quantities in excess of standard amounts require
approval
Indirect access to assets
Controlled use of mat req, excess mat req, and
employee time cards
Independent verification
Pcspt acc reconciles mat usage and L usage with
standards
World-Class Companies and Lean Manufacturing
World Companies
Continuously pursue improv in all aspects of their ope
including manu procedures
Highly customer oriented
Undergone fundamental changes from traditional
production model
Often adopt a lean manufacturing model
Principles of Lean Manufacturing
Pull processing
Products are pulled form consumer end(demand)
not pushed from the production end(supply)
Perfect quality
Pull process requires zero defects in RM, WiP and FG
inv
Waste minimization
Act that do not add value or max the use of scarce
resources are eliminated
Inventory reduction
Hallmark of lean manu
Inv cost money
Inv can mask prod prob
Inv can precipitate overprod
Production Flexibility
Reduce setup time to a minimum allowing for a
greater diversity of products, w/o sacrificing
efficiency
Estimated Supplier Relations
Late deliveries, defective RM or incorrect orders will
shut down prod since there are inventory reserves
Team attitude
Each employee must be vigilant of problems that
threaten the continuous flow of the prod line
Lean Manufacturing Model
Achieve prod flexibility by means of
Changes in the physical org of production
facilities
Employees of automated tech
CIM, AS/RS, CAD, CAM, robotics
Use alternative accounting models
Use of advance information systems
Techniques and technologies that promote lean
manufacturing
Physical reorganization of the Production Facilities
Inefficiencies in trad plant layouts increases handling
costs, conversion time and excess inv
Employees tend to feel owenership over their station
contrary to the team concept
Reorganization is based on flows through cells w/c
shorten the physical distance between act
This reduces setup and processing time, handling
costs, and inv.
Automating Manufacturing
Traditional approach to Automation
Many machine requires lot of setup time
Machines n operator are organized in funcitional
dept
WiP follos circuitious route through dif ope
Island of Technology
Stand-alone island which employ Computer
Numerical Controlled (CNC) machine that can
perform multiple ope with less human involvement
Computer Numerical Controlled (CNC) machines
Reduces complexity
Arranged in grups
Need less set-up time
Computer Integrated Manufacturing (CIM)
A completed automated envi w/c employs
automated storage and retrieval systems (AS/RS)
and robotics
Automated storage and retrieval systems (AS/RS)
Replaces trad forklifts and their human operators
Reduces errors, improved inv control and lower
storage costs
Robotics
Use special CNC machines
Computer-Aided Design (CAD)
Increases Eng. Productivity
Improves accuracy
Allows firms to be more responvie to market
Interface with CAM and MRPII systems
Computer Aided Manufacturing (CAM)
Uses computers to control the physical manu
process
Provides greater precision
Achieving World-Class Status
Accouting in a Lean Manufacturing Environment
What’s Wrong with Traditional Accounting Information
Inaccurate cost allocations
Promotes nonlean behavior
Time lag
Financial orientation
Activity Based Costing (ABC)
Is an info system that provides managers information
about activities and cost objects
Assumes that act cause cost and that products create a
demand for acti
Is diff from trad accntng system since has multiple acti
drivers
Value Stream Accounting
Value stream
All the steps in a process that are essential to produ
a product
Cut across function and dept
Captures cost by value stream rather than by dept or
acti
Simplier than abc
No distinction between direct and indrect costs
Including labor costs
Information Systems that Support Lean
Manufacturing
Manufacturing Resources Planning (MRP)
Ensures adequate RM for prod process
Maintain the lowest possible level of inv on hand
Produce prod and pur sched and other info needed
to control prod
MRP II
An extension MRP
More than inv management and prod scheduling
Is a system for coordinating act of the entire form
Enterprise Resource Planning (ERP) Systems
Huge commercial software packages that sp the info
needs of the entire org, not just manu functions
Automates all bus functions along w/ full fin and
managerial reporting capability
Electronic Data Interchange (EDI)
External comms with its customer and suppliers via
Internet or direct connections
