Chapter 10Production Cycle
Production CycleThe production cycle is a recurring set of
business activities and related data processing operations
associated with the manufacturing of products.Information flows to
the production cycle from other cycles: The revenue cycle provides
information on customer orders and sales forecasts for use in
planning production and inventory levels. The expenditure cycle
provides information about raw materials acquisitions and overhead
costs. The human resources/payroll cycle provides information about
labor costs and availability.Information also flows from the
production cycle: The revenue cycle receives information from the
production cycle about finished goods available for sale. The
expenditure cycle receives information about raw materials needs.
The human resources/payroll cycle receives information about labor
needs. The general ledger and reporting system receives information
about cost of goods manufactured.Functions of Production Cycle
Performing production planning Managing the inventory level
Maintaining and controlling production operations Recording
resources used in production and completion of finished goods in
the ledgers Preparing inventory analysis and production
analysis
Activities in the Production Cycle1. Product design2. Planning
and scheduling3. Production operations4. Cost accounting
Product DesignThe objective of this activity is to design a
product that meets customer requirements for quality, durability,
and functionality while simultaneously minimizing production
costs.
Two Main Documents Created by Product Design Activity Bill of
Materials lists the components that are required to build each
product, including part numbers, descriptions and quantity.
Operations List lists the sequence of steps required to produce
each product, including the equipment needed and the amount of time
required.
Production Planning and SchedulingThe objective of the planning
and scheduling activity is to develop a production plan that is
efficient enough to meet existing orders and anticipated
shorter-term demand while minimizing inventories of both raw
materials and finished goods.
Approaches to Production Planning Manufacturing Resource
Planning (MRP-II) seeks to balance existing production capacity and
raw materials needs to meet forecasted sales demands. Lean
Manufacturing seeks to minimize or eliminate inventories of raw
materials, work in process, and finished goods.Key Documents and
Forms in Planning and Scheduling Master Production Schedule (MPS)
specifies how much of each product is to be produced during the
planning period and when that production should occur. Production
Order authorizes production of a specified quantity of a product.
It lists: Operations to be performed Quantity to be produced
Location for delivery Materials Requisition authorizes removal of
materials from the storeroom to the factory. Move Ticket documents
the transfer of parts and materials throughout the factory.
Production OperationsProduction operations vary greatly across
companies, depending on the type of product and the degree of
automation.Principal Objectives of the Cost Accounting System1. To
provide information for planning, controlling, and evaluating the
performance of production operations2. To provide accurate cost
data about products for use in pricing and product mix decisions3.
To collect and process the information used to calculate the
inventory and cost of goods sold valuesTypes of Cost Accounting Job
Order Costing assigns costs to a specific production batch or job.
Process Costing assigns costs to each process or work center in the
production cycle.Cost Accounting System Data Raw materials Direct
labor Machinery and equipment usage Manufacturing overheadControl:
Objectives, Threats, and ProceduresIn the production cycle (or any
cycle), well-designed AIS should provide adequate controls to
ensure that the following objectives are met: All transactions are
properly authorized. All recorded transactions are valid. All valid
and authorized transactions are recorded. All transactions are
recorded accurately. Assets are safeguarded from loss or theft.
Business activities are performed efficiently and effectively. The
company is in compliance with all applicable laws and regulations.
All disclosures are full and fair.
What are some threats? unauthorized transaction theft or
destruction of inventories and fixed assets recording and posting
errors loss of data inefficiencies and quality control problems
What are some control procedures? accurate sales forecasts and
inventory records authorization of production restricted access to
production planning program and to blank production order documents
review and approval of capital asset expenditures documentation of
all internal movements of inventory proper segregation of duties
source data automation online data entry edit controls backup and
disaster recovery procedures regular performance reports cost of
quality control measurement
