1.Ch. 14 -The ProductionCycle

2. Cycle of Business ActivitiesCapital CapitalInvestment Investment Financing Cycle SaleRevenue Cycle Input General Ledger and AcquisitionReporting SystemExpenditure Human Cycle ProductionResource Cycle Payroll CycleHire & Conversion pay employees 3. Production Cycle Context DiagramFigure 14-1 Customer ordersPurchaseRevenuerequisitions Expenditure Cycle Sales CycleforecastProduction Overhead/Cycle Raw materials Finished goodsCOGMLabor needs G/L andReportsReporting Labor H/R & SystemcostsPayrollManagementCycle 4. Production Cycle Context DiagramFigure 14-1 Customer ordersRevenue Cycle Salesforecast Production Cycle 5. Production Cycle Context DiagramFigure 14-1 Customer orders PurchaseRevenue requisitions Expenditure Cycle SalesCycleforecast Production Overhead/ Cycle Raw materials 6. Production Cycle Context DiagramFigure 14-1Customer orders PurchaseRevenuerequisitions Expenditure CycleSalesCycle forecastProduction Overhead/Cycle Raw materialsFinished goodsLabor needs Labor H/R &costsPayrollCycle 7. Production Cycle Context DiagramFigure 14-1 Customer ordersPurchaseRevenuerequisitions Expenditure Cycle Sales CycleforecastProduction Overhead/Cycle Raw materials Finished goodsCOGMLabor needs G/L andReportsReporting Labor H/R & SystemcostsPayrollManagementCycle 8. Production Cycle ActivitiesProduct designProduction planning and schedulingProduction OperationsCost Accounting 9. Product DesignVCR Bill of MaterialsBill of materialsControl Unit - 1 Exploded to determineBack Panel - 1 Side Panel - 4production needs Timer - 1 Front Panel - 1 Screw - 6Operations listVCR Operations List(routing sheet) Assembly - .15 hour Finishing - .1 hourTesting - .2 hour 10. Production Cycle Level 0 Diagram Figure 14-2 abbreviated CostsCost AccountingOperations List1.0Bill of materials Product Design 11. Planning & SchedulingMRP - II Push manufacturing long-term planningJIT Pull (lean) manufacturing short-term planning 12. Master Production ScheduleSpecifies what, when and howmuch to produce based oncustomer orders, sales forecastsand FG inventory levelsExplodes bill of materials todetermine raw material needsProduces production order,materials requisition and move See Figure 14-6tickets 13. Production Cycle Level 0 Diagram Figure 14-2Planning and Scheduling abbreviated Sales Forecasts RevenueCycleCustomer Orders2.0Planning and Scheduling Bill of materials Raw materials 14. Production Cycle Level 0 Diagram Figure 14-2Planning and Schedulingabbreviated Sales Forecasts RevenueCycleCustomer Orders2.0Planning and Operations ListLaborScheduling AvailableBill of materialsHRM/ Payroll CycleRaw materials 15. Production Cycle Level 0 Diagram Figure 14-2Planning and Scheduling abbreviatedExpenditure Cycle Purchase Requisitions 2.0 Planning andSchedulingProduction orders, Material requisitions,And move 3.0ticketsProduction ordersProductionOperations 16. Production Cycle Level 0 Diagram Figure 14-2Planning and Schedulingabbreviated Sales Forecasts Expenditure RevenueCycle CyclePurchase RequisitionsCustomer Orders2.0 Planning and Operations ListLabor Scheduling AvailableBill of materialsHRM/ Payroll Cycle Production orders, Raw materialsMaterial requisitions, And move 3.0 tickets Production orders Production Operations 17. Production Order Authorizes the start of production Identifies quantity to be produced, production departments required, and final destination Production Order -Job #100: 660 units of Item #3072 See Figure14-7 18. Materials RequisitionAuthorizes release of raw materials intoproductionServes as source document for journal entrytransferring raw materials to WIPExploded bill of materialMaterials Requisition -(see Figure 14-8) 19. Accounting for Transfers of Materials Dr. Cr.Work in process inventory - Job #100 XXRaw materials inventoryXX Materials Requisition for Job #100 20. Move TicketDocuments transfers of productionbetween departments Move TicketJob #: 100Moved from: AssemblyMoved to: FinishingQuantity transferred: 675 unitsTime: 10/5 8:45 a.m.See Figure 14-9 21. Production OperationsTrack:raw materials usedlabor expendedmachine operations performedother manufacturing overhead costsincurred 22. I/T for Materials HandlingBar-coding/conveyer beltsRFID tags Located by radio signalNo scanningUp to 40X faster than bar codesNot affected by dirtNot required to be in line of sightContinuous monitoring capabilities 23. Production Cycle Level 0 Diagram Figure 14-2Production Operations abbreviated3.0Job time tickets, Productionmove tickets and material requisitions, Operations 4.0 CostAccounting Production orders,Material requisitions,2.0And move ticketsPlanning Production orders And Scheduling 24. Cost AccountingInformation for planning and controlCaptures cost dataCalculates inventory and COGSJob order vs. process costing 25. Accounting for Direct Labor InputsDr. Cr.Work in process inventory - Job #100XXDirect LaborXX JobTicket Welding Dept.:Job #100 30 hours Job #100 30 hours Or on-line entry viaterminals, badges orbar code readers 26. Allocating OverheadDr. Cr.Work in process inventory - Job #100XXFactory OverheadXX Activity base Predetermined(labor hours, Overhead RateX # of setups, machine hours, etc.) 27. ABC Overhead AllocationBetter decisions/improved cost managementboth financial and nonfinancial measuresneed to be captured by the AISG/L may need to be completely revamped! 28. Transfers of Completed Goods Dr. Cr.Finished goods inventory - Item #3072XXWork in process inventory - Job #100 XXFinished GoodsReportJob #100 - 675 units 29. Cost Accounting System RecordsJob Cost LedgerJob #100 Job #101- OR - Job Cost File 30. Cost Accounting System RecordsFixed Asset Records ID #, Serial #, Location,Cost, Depreciation info Formal procedures forcompetitive bids RFID tags for preventivemaintenance 31. Production Cycle Level 0 Diagram Figure 14-2Cost Accountingabbreviated4.0Cost Operations List Labor AccountingCostsBill of materials HRM/PayrollCycle Job time tickets, move tickets and3.0 material requisitions ProductionRaw material OperationsAndExpenditureOverhead costsCycle 32. Production Cycle Level 0 Diagram Figure 14-2Cost Accountingabbreviated Revenue G/L andCyclereporting system Cost of goods manufactured Finished Goods4.0 CostAccounting Work in processFinished goods 33. Production Cycle Level 0 Diagram Figure 14-2Cost Accounting abbreviated RevenueG/L andCycle reporting system Cost of goods manufactured Finished Goods4.0 Cost Operations ListLabor Accounting Costs Bill of materialsHRM/ Payroll Work in process CycleJob time tickets,move tickets and Finished goods 3.0 material requisitionsProduction Raw materialOperations AndExpenditure Overhead costsCycle 34. Opportunities for ITCoded ID Cards/Badge Readers/ ElectronicTime ClocksOn-line Data EntryComputer-integrated Manufacturing (CIM)Real-Time Production Information machine monitoring production status product recall inventory management 35. Transaction AuthorizationProductionMaterialsmanager/supervisor RequisitionauthorizesInventory controlreleases material 36. Security for Assets and RecordsRestricted physical accessGoods controlled and released onlyupon approved material requisitionor shipping requestDocumented material movementInsuranceBackup files/power and disasterrecovery proceduresAccess controls and encryption 37. Segregation of DutiesBetween: InventoryRecordsand Warehouse ProductionFactoryandControl 38. Segregation of Duties Cost Generaland AccountingAccountingBoth are recording functions, so segregation of dutiesis not necessary. However, if one person maintainsthe job subsidiary ledger and another maintainsthe general ledger, its a check and balance when the WIPaccount is reconciled at the end of the month.So if you can segregate, do so. 39. Adequate Documentsand RecordsPrenumbered andaccounted for(production orders,material requisitions,finished goods reports)Periodic counts ofinventory and fixedassets withreconciliation toperpetual records