Conversion cycle

CONVERSIONCYCLE

Group 4:

ManguinNocilladoPuyoSagunSambatSamiling

CONVERSION CYCLE

consists of two subsystems:

• Production System

• Cost Accounting System

THE TRADITIONAL MANUFACTURING ENVIRONMENT

PRODUCTION METHODS

• Continuous Processing

• Make-to-Order Processing

• Batch Processing

DOCUMENTS IN THE BATCH PROCESSING SYSTEM

• Production Schedule• Bill of Materials (BOM)• Route Sheet• Work Order• Move Ticket• Materials Requisition

Production Schedule

Bill of Materials (BOM)

Route Sheet

Work Order

Move Ticket

Materials Requisition

QUESTION No. 1 It records the work done in each work center.

a. Move Ticketb. Work Orderc. Route Sheetd. Bill of Materials

QUESTION No. 2 The storekeeper releases raw materials based on the

a. Move Ticketb. Production Schedule c. Materials Requisitiond. Bill of Materials

QUESTION No. 3 It is the formal plan and authorization to begin production.

a. Move Ticketb. Production Schedule c. Materials Requisitiond. Bill of Materials

BATCH PRODUCTION ACTIVITIES1. Production Planning and Control

a. Materials and Operations Requirement b. Product Scheduling

2. Work Centers and Storekeeping3. Inventory Control

Objective: "Minimize total inventory cost while ensuring that adequate inventory exist of production demand."

-How much inventory should be purchased? Economic Order Quantity= square root of (2DS/H)

-When should inventory purchased?ReOrder Point= Ixd+S

Production Planning and ControlR1:

Uncalculated production(surplus)

C1: PPC authorizes production activity via formal work orderR2: Production

without formal documents

C2: PPC separated from work centers. Actual productions are initiated upon receipt of control documents by work centers

1

Work Centers and StorekeepingR3: Improper allocation of labor

C3: Use of time cards and job tickets, together with supervision of managers

R4: Issuance of excess materials

C4: Before actual production takes place, obtaining RM from storekeeping in exchange of Material Requisition is needed.

Inventory ControlR5: Validity of RM and FG Inventory records

C5: Periodically updating of inventory records; periodically verification through physical count by auditorsR6: Collusion

between employees from record keeping to asset inventory

C6: Inventory Control maintains RM and FG inventory, separated from Materials Storeroom and FG warehouse

Question No. 1

Inventory control performs all of the following tasks except it

a. provides production planning and control with the inventory status report of finished goodsb. updates the raw material inventory recordsc. prepares a materials requisition for each production batchd. records the completed production as an increase to finished goods inventory

Question No. 2

Which of the following is not an assumption of the Economic Order Quantity model?

a. demand for the product is known with certaintyb. total cost per year of placing orders is fixedc. lead time is known and is constantd. there are no quantity discounts

Question No. 3

What is the economic order quantity if the annual demand is 60,000 units, set up cost of placing each order is $900 and the holding cost per unit per year is $1200?

a. 300b. 200c. 100d. 450

CONTROLS IN TRADITIONAL ENVIRONMENT

• TRANSACTION AUTHORIZATION• Work order, move ticket, materials requisition

• SEGREGATION OF DUTIES• IC separate from RM & FG inventory custody

• SUPERVISION• ACCESS CONTROLS• ACCOUNTING RECORDS

• Cost sheets, job tickets, WIP records, FG inventory file• INDIVIDUAL VERIFICATION

• Cost accounting function reconciles all cost of production

WORLD-CLASS COMPANY

✓Maintain strategic agility✓Motivate and treat employees like

appreciating assets✓Meet the needs of its customer✓Philosophy of customer satisfaction✓Philosophy of lean manufacturing

LEAN MANUFACTURINGPRINCIPLES:

❖PULL PROCESSING-pulling products from consumer end

❖PERFECT QUALITY-to meet consumers’ demand❖WASTE MINIMIZATION-eliminate non-value

activities❖INVENTORY REDUCTION-reduce inventory costs❖PRODUCTION FLEXIBILITY-to produce diversity of

products❖ESTABLISHED SUPPLIER RELATIONS-reliable

vendors❖TEAM ATTITUDE-attitude as a whole of all

employees

Question No. 1

Production in lean manufacturing is initiated by:

a. Pushb. Pull

Question No. 2

Goal of lean manufacturing:

a. Minimize controlb. Improved efficiency and effectivenessc. Lessen production

Question No. 3

PPC authorizes production activity via formal:

a. BOMb. Work Orderc. Production Schedule

TECHNIQUES & TECHNOLOGY THAT PROMOTES LEAN MANUFACTURING

• PHYSICAL REORGANIZATION OF THE PRODUCTION FACILITIES

Reorganizing and/or restructuring of the Manufacturing process in order to improve its effectiveness and efficiency.

• AUTOMATION OF THE MANUFACTURING PROCESSThe replacement of human labour with autonomous or semi-autonomous machinery.

AUTOMATION OF THE MANUFACTURING PROCESS(The replacement of labour with machinery.)

• Automation in Traditional Manufacturing - Consists of different kinds of machines, each controlled by a single operator. Requires a great deal of setup time whose costs are absorbed by massive production runs.

• Islands of Technology -Stand alone machines that are Computer Numerical Controlled, which can perform multiple operations with minimal human involvement

• Computer Integrated Manufacturing -A completely automated environment that aims to eliminate unnecessary processes in production.

• Automated Storage and Retrieval Systems (AS/RS) -Are computer-controlled conveyor systems that carry raw materials and products across different production departments. Replaced traditional Forklifts and their human operators. This helps improve inventory control, and reduce errors and storage costs.

•Robotics -Manufacturing robots are useful for performing hazardous production tasks,

and are programmed to perform specific actions over and over with a high degree of precision.

•Computer-Aided Design (CAD) -Is used by engineers to design product

faster. It increases their productivity by improving accuracy, automating repetitive tasks, and allowingfirms to adjust their production quickly to be more responsive to market demands.

•Computer-Aided Manufacturing (CAM) -Uses computers to assist in

the manufacturing process. It utilises the CAD data and converts it into a series of processes in themanufacturing process. Utilisation of this technology improves process productivity, cost and timeestimates, process monitoring and quality, decreased setup times and labour costs.

•Value Stream Mapping -Is a very detailed graphical representation of a

company's business processes. It helps to thoroughly identify the aspects of it that are wasteful andunessential, and therefore enabling them to be removed.

Question No. 1

Consists of different kinds of machines, each controlled by a single operator?

a. Automated Storage and Retrieval Systemsb. Roboticsc. Automation in Traditional Manufacturing d. Cells

Question No. 2

Are useful for performing hazardous production tasks, and are programmed to perform specific actions over and over with a high degree of precision.

a. Automaton Assisted Manufacturing b. Automated Storage and Retrieval Systems c. Roboticsd. A and C

Question No. 3

Stand alone machines that are Computer Numerical Controlled, which can perform multiple operations with minimal human involvement

a. Computer-Aided Manufacturing (CAM)b. Automated Manufacturingc. Islands of Technologyd. Stand-alone systems

ACCOUNTING IN A LEAN MANUFACTURING

Require new accounting methods and new information that:

•Shows what matters to its customers• Identifies profitable products• Identifies profitable customers• Identifies opportunities•Encourages the adoption of value-added

activities and processes•Efficiently supports multiple users

WHAT’S WRONG WITH TRADITIONAL ACCOUNTING INFORMATION?

• Inaccurate Cost Allocations• Promotes Nonlean Behavior• Time Lag• Financial Orientation

Activity-Based Costing (ABC)❖ Activities - worked performed in a firm❖ Cost Objects - reason for performing

activities

Advantages of ABC• More accurate costing• Identify most & least profitable• Accurately tracking costs• Equipping managers with cost intelligence• Facilitating better marketing mix• Identifying waste and non-value-added

activities Disadvantages of ABC❖ Time-consuming and complicated

Value Stream Accounting

Question No. 1

What’s wrong with traditional accounting information?

a. Accurate Cost Allocationsb. Promotes Lean Behaviorc. Timelinessd. Financial Orientation

Question No. 2

All are advantages of ABC, except:a. Identifying waste and non-value-added

activitiesb. Time-consuming and complicated c. Facilitating better marketing mixd. Equipping managers with cost intelligence

Question No. 3

Require new accounting methods and new information that:

a. Identifies profitable productsb. Identifies profitable customers c. Encourages the adoption of value-added

activities and processesd. Efficiently supports individual users

INFORMATION SYSTEM THAT SUPPORTS LEAN MANUFACTURING

A.Materials Requirements Planning (MRP)

● automated production planning and control system used to support inventory management.

● Objectives: RM adequacy, inventory and schedules mgt.

● Answers: 1. What is needed? (RM)2. How much is needed? (QTY)3. When is it needed? (SCHEDULE)


B.Manufacturing Resource Planning (MRP II)

● integrates product manufacturing & engineering, sales order processing, customer billing, human resources, and related accounting functions.

● Includes labor hours, material costs and other resources related to production.


C.Enterprise Resource Planning (ERP) Systems

● Large suites of integrated function-specific modules; capable of EDI with suppliers and customers.

● Improve customer service, reduce production time, increase productivity, and improve decision making.

● Main objective is cost reduction in complex and big companies.

● SAP, ORACLE, People Soft, Baan, JD Edwards.

Question No. 1

MRP stands fora. Materials Requirement Planningb. Manufacturing Resources Planningc. Manufacturing Resources Productiond. None of the Above

Question No. 2

ERP Systems:a. Improve customer service & reduce

production timeb. Increase productivity & improve decision-

makingc. A & Bd. None of the Above

Question No. 3

Which Statement is TRUE?a. ERP evolved directly from MRPb. MRP and MRP II evolved from ERPc. MRP II evolved from MRP and MRP II evolved

into ERP.d. None of the Above

Emergency Question No. 1

Automation of the manufacturing process is ?

a. Computer-Aided Manufacturing (CAM)b. A completely automated environment that

aims to eliminate unnecessary processes in production.

c. Reorganizing and/or restructuring of the Manufacturing process in order to improve its effectiveness and efficiency.

d. The replacement of human labour with autonomous or semi-autonomous machinery.


All of the following are characteristics of batch processing except a. each item in the batch is similar b. batches are produced in accordance with detailed customer specifications c. batches are produced to replenish depleted inventory levels d. setting up and retooling is required for different batches


Which is not a principle of lean manufacturing: a. Team attitude b. Perfect quality c. Inventory maintenance


If the daily demand is 60 units and the lead time is 12 days, the reorder point is

a. 720 unitsb. 270unitsc. 072 unitsd. none of the above

Education

Conversion cycle