ais 1
TRANSCRIPT
Accounting Information Systems: Accounting Information Systems: Essential Concepts and ApplicationsEssential Concepts and Applications Fourth Edition by Wilkinson, Cerullo, Raval, and Fourth Edition by Wilkinson, Cerullo, Raval, and Wong-On-WingWong-On-Wing
Module 3: The Conversion Cycle
Slides Authored by Somnath Bhattacharya, Ph.D.Florida Atlantic University
Objectives of the Conversion Cycle - I
The major purpose of the Conversion Cycle is to transform raw materials into finished goods
Specifically, the objective is to ensure that: 1) Adequate raw materials and other resources are
available for production, while the investment in such resources is minimized
2) Production costs are minimized through high labor productivity, full utilization of production equipment, low levels of scrap and rework, and optimal design of production layouts and procedures
3) WIP inventories are transformed into finished goods, which are then either warehoused or shipped on schedule
Objectives of the Conversion Cycle - II
4) Establish levels of product quality and after-sales service are attained
5) Costs for each order or process are accumulated fully and accurately
A Partial Organization Chart of a Logistics Function
P rod u c tionP lan n in g& C on tro l
M a in ten an ce
W ork C en te rA
W ork C en te rB
W ork C en te r...n
P rod u c tionS u p erin ten d en t
Q u a lityC on tro l
S h ip p in g
P rod u c tionM an ag em en t
S a les O rd erE n try
E n g in eerin gD es ig n
P u rch as in g R ece ivin g S tores
In ven to ryM an ag em en t
V PL og is tic s
Figure M3-1
Forms of Data Input
Customer orderBill of materialsOperations list/Routing slipProduction scheduleProduction orderMaterials issue slip/Materials requisitionLabor job-time ticketMove ticket/travelerInspection report(s)
Computerized Data Entry
Data are captured via terminals or micro-based work-stations using such techniques as keyed-in alphanumeric codes, inserted badges or cards, scanned bar codes, or touched monitor screens.
Preformatted documents are automatically generated using application software and on-line data bases.
Electronic copies of the documents are maintained in on-line files, and hard-copy forms are printed only as needed and requested.
Data Processing
The conversion cycle encompasses three major processing steps: Production planning Production operations Accounting for production
costs
Advantages of Computer Integrated Manufacturing Systems - I
1) The materials requirements relating to demands for products are determined beforehand, so that the materials are transferred to the production areas in time for production starts
2) Production orders are scheduled to accommodate the manufacturing capacity
3) Data are validated upon online entry, so that errors are detected more quickly and reprocessing delays due to undetected errors are reduced
Advantages of Computer Integrated Manufacturing Systems - II
4) Inventory and production order records are updated in a timely manner from materials requisitions, labor-time entries, and move tickets
5) Accounting-related processing is simplified, since transactions are posted without sorting to online files
6) Control reports such as cost variance analyses are prepared for managers
A Configuration for CIM, Including Associated Accounting Modules
Logisticsdata base
Accountingdata base
Cost Accounting
InventoryControl
ProductCosting
AutomatedHandling
Warehousing
Manufacturing
CAM
FMS
Robotics
ProductionPlanning
MRP
JIT
Engineering
CAD
Figure M3-17
Benefits of CIM Systems - I
Greater flexibility in meeting the changing needs of customers
Savings in the material inventory investment
Increased quality in productsOptimal scheduling of production, with
dynamic adjustments as conditions change or new orders are received
Shorter production cycle timesImproved productivity of employees
and hence reduced labor costsContinuous monitoring of production
operations, with immediate feedback of control problems as they arise
Benefits of CIM Systems - II
Savings in paperwork costs, since most interactions are performed via computer and records are stored electronically
Better utilization of all production facilities
Greater accessibility of information, including the ability to provide ad hoc reports for planning and control
Benefits of CIM Systems - III
Measures Relating to the Product Conversion Cycle - I
Category Examples ofMeasures
Customer Satisfaction Quality
Service
Availability
Figure M3-18
Category Examples of Measures
Performance Production cycle time
Product yield
Percentage of scrap costto dollars of productshippedEmployee productivity
Direct labor variance
Figure M3-18 Continued
Measures Relating to the Product Conversion Cycle - II
Figure M3-18 Continued
Category Examples ofMeasures
ResourceManagement
Manufacturing cost asa percentage of dollarsaleDollar sales perproduction employeeRaw materialsinventory turnoverProduction output persquare foot of factoryspaceAverage machinetime in days permonth
Measures Relating to the Product Conversion Cycle - III
Category Examples ofMeasures
Flexibility Average cycle timeper productNumber of daysunder productionscheduleChangeover time
Figure M3-18 Continued
Measures Relating to the Product Conversion Cycle - IV
Scheduled Managerial Reports
Employee productivity reports that compare the output of the operations work center employees against standard levels of production
Work center performance reports that reflect the efficiency of each work center
Open production order status reports that show which orders are behind schedule and by how much
Equipment utilization reports that show the percentage of downtime for each piece of factory equipment
Waste reports that show the percentages of scrap, rework, and rejects for the production orders currently in process
Data Management: File Oriented Approach
Master Files Raw materials WIP Finished goods
Transaction Files Production order file Materials issues file Operations/Routing file
An Entity-Relationship Diagram of the Product Conversion Cycle
ProductionPlanner
DispatchProduction Order
Work CenterEmployeesAssign to
Production order/materials
RawMaterials
ProductionOrder/Operations
Undertake to
PerformOperationsUsed in
EstablishWIP
Inventory
AccumulateCosts
CostAccountant
CompleteProduction
Finished GoodsInventory
1
1
mm1
n
1
nn
n
n
n
1
1m
11
1 Figure M3-22
Risk Exposures Within the Product Conversion Cycle - I
Risk Exposure(s)1) Incorrect costs charged toWIP Inventory
1) Overstatement of inventory
2) Errors in recording quantitiesof WIP or Finished GoodsInventory
2) Incorrect balances ininventory records
3) Release of wrong productionorder into production
3) Mix-up in productionschedule, causing possibledelays
4) Unauthorized release ofproduction order intoproduction
4) Mix-up in productionschedule; causing possibledelays
5) Issuance of excessive orinsufficient quantities ofmaterials into production
5) Possibility of lost materials ifexcessive issue, or delay ifinsufficient issue
6) Fraudulent charging of laborhours to production
6) Excessive production costs
Figure M3-24
Risk Exposure(s)7) Fraudulent charging ofexcessive overtime forproduction employees
7) Excessive production costs
8) Theft of inventories or scrap 8) Losses of cash
9) Excessive delays of ordersbetween production operations
9) Excessive production costsand possible revision inschedule
10) Falsification of finished-goods inventory records
10) Misstatement of inventoryvaluation
11) Improper use of cost-flowmethods with respect toinventories
11) Misstatement of inventoryvaluation
12) Inflation of inventoryvalues due to not writing downitems
12) Overstatement of inventoryvaluation
Figure M3-24 Continued
Risk Exposures Within the Product Conversion Cycle - II
Risk Exposure(s)13) Undue delays in detectingitems of products that havebecome defective duringproduction operations
13) Excessive production costs
14) Involvement of inventories,production facilities, and ledgerrecords in natural or human-made disasters
14) Loss of or damage toassets, including possible lossof data
15) Interception of datatransmitted via the web
15) Loss or alteration of data
16) Denying that an onlineorder was placed after theproduction order is processed
16) Loss of sales revenues
17) Unauthorized purchase ofmaterials initiated via the web
17) Excessive inventory andstorage costs
18) Breakdown of the Webserver
18) Loss of data and delay inprocessing orders
Figure M3-24 Continued
Risk Exposures Within the Product Conversion Cycle - III
Control Objectives
To ensure that: All production orders are properly authorized and
scheduled All needed raw materials and other resources are
assigned to production orders promptly and accurately, and the related costs are accumulated fully in accordance with the established system of cost accounting
All movements of production orders through the production process are reflected by acknowledgements at the various work centers
All finished goods are valued properly All inventories are adequately safeguarded
General Controls
OrganizationalDocumentationAsset AccountabilityManagement PracticesAuthorizationAccess
Application Controls
Input ControlsProcessing ControlsOutput Controls
Web Security Procedures
AuthenticationAuthorizationAccountabilityData TransmissionDisaster Contingency and
Recovery Plan
Copyright © 2000 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.
Accounting Information Systems: Accounting Information Systems: Essential Concepts and ApplicationsEssential Concepts and Applications Fourth Edition by Wilkinson, Cerullo,Fourth Edition by Wilkinson, Cerullo,Raval, and Wong-On-WingRaval, and Wong-On-Wing