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the conversion cycle

The document outlines the conversion cycle in manufacturing, detailing production methods such as continuous, market-to-order, and batch processing. It emphasizes the importance of batch processing systems, including production planning, inventory control, and cost accounting, while highlighting the controls necessary in a traditional manufacturing environment. Additionally, it discusses the principles of lean manufacturing, the advantages of activity-based costing (ABC) over traditional methods, and the role of information systems in supporting lean practices.

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roruelo
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3 views

the conversion cycle

The document outlines the conversion cycle in manufacturing, detailing production methods such as continuous, market-to-order, and batch processing. It emphasizes the importance of batch processing systems, including production planning, inventory control, and cost accounting, while highlighting the controls necessary in a traditional manufacturing environment. Additionally, it discusses the principles of lean manufacturing, the advantages of activity-based costing (ABC) over traditional methods, and the role of information systems in supporting lean practices.

Uploaded by

roruelo
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 32

THE

CONVERSION CYCLE
CHAPTER 7
CONVERSION CYCLE

Converts input resources into


finished products for sales.
TRADITIONAL MANUFACTURING
ENVIRONMENT

A. Production Methods
B. Batch Processing Systems
- 4 Basic Processes
- Documents in BPS
- Batch Production Activities
C. Controls in the Traditional Environment
A. PRODUCTION METHODS

• 1.Continuous Processing
- creates a homogenous product through a continuous
series of standard procedures.

• 2.Market-to-order processing
- involves the fabrication of discrete products in
accordance with customer specifications. This process is
initiated by sales orders rather than depleted inventory
levels.
A. PRODUCTION METHODS

• 3.Batch processing

- produces discrete groups of products. Each item


in the batch is similar and requires the same raw
materials and operations. To justify the cost of setting up
and retooling for each batch run, the number of items in
the batch tends to be large.
B. BATCH PROCESSING SYSTEM

4 Basic Processes

1.Plan and control production


2.Perform production operation
3.Maintain inventory control
4.Perform cost accounting
B. BATCH PROCESSING SYSTEM

Documents in BPS
A manufacturing process could trigger either by individual sales orders
from revenue cycle, or by a sales forecast in the marketing system.

• Production Schedule
- is the formal plan and authorization to begin production.
Describes the specific products to be made, the quantities to be
produced, and the manufacturing timetable for starting and
completion of production.
B. BATCH PROCESSING SYSTEM

Documents in BPS
• Bills of materials (BOM)
- specifies the type of quantities of the raw material and subassemblies used
in producing a single unit of finished product. (BOM x # of items in batch= RM)
• Route sheet
- production path that a particular batch of product follows during
manufacturing.
• Work order (or PO)
- draws from BOMs and route sheets to specify the materials and production
for each batch.
B. BATCH PROCESSING SYSTEM

Documents in BPS

• Move ticket
- records work done in each work center and authorizes the
movement of the job or batch from one work center to the next.
• Material requisition
- authorizes the store keeper to release materials to
individuals or work centers in the production process.
B. BATCH PROCESSING SYSTEM

Batch Production Activities

1 - Production Planning & Control


2 - Work Center & Storekeeping
3 - Inventory Control
4 - Cost Accounting
C. CONTROLS IN THE TRADITIONAL
ENVIRONMENT
 General Classes of Internal Control Activities

Control Class Control Point in the System


1. Transaction
Work Orders, Move tickets and Material Requisition
Authorization
a. Inventory control separate from the work center
2. Segregation of
b. Cost accounting separate from work centers
Duties
c. GL separate from other accounting functions
3. Supervision Supervisors, oversee usage of RM and timekeeping
Limit physical access to FG, RM stocks and production
4. Access Control process. Use formal procedures and documents to release
material into production.
C. CONTROLS IN THE TRADITIONAL
ENVIRONMENT

Control Class Control Point in the System


5. Accounting Work orders, cost sheets, move tickets, job tickets, material
Records requisition, WIP records, FG inventory file
Cost accounting reconciles all cost of production
6. Independent GL reconciles overall system
Verification
WORLD-CLASS COMPANIES & LEAN
MANUFACTURING

A. Characteristics of World-Class Companies

B. Principles of Lean Manufacturing

C. Techniques and Technologies promoting LM


A. CHARACTERISTICS OF WORLD-CLASS
COMPANIES

Must maintain strategic agility and be able to turn on a


dine
Motivate and treat employees like appreciating assets
Profitability meets the needs of customers
Permeated by the philosophy of customer satisfaction
Follows the lean manufacturing doing more with less,
eliminating waste, production cycle time.
B. PRINCIPLES OF LEAN MANUFACTURING

 Evolved from Toyota Production System (TPS), which


is based on just-in-time production model.
 Goal: improved efficiency and effectiveness in every
area and
 Involves getting the right products to the right place,
at the right time, in the right quantity while minimizing
waste and remaining flexible
B. PRINCIPLES OF LEAN MANUFACTURING

a. Pull Processing
b. Perfect Quality
c. Waste Minimization
d. Inventory Reduction
e. Production Flexibility
f. Established Supplier Relations
g. Team Attitude
C.TECHNIQUES AND TECHNOLOGIES
PROMOTING LM
• Physical Reorganization of the Production Facilities
• Automation of the Manufacturing Process
o Traditional Manufacturing
- consists of different types of machines, each controlled
by a single operator.
o Island of Technology
-an environment where modern automation exist in the
form of islands that stand alone within the traditional setting
C.TECHNIQUES AND TECHNOLOGIES
PROMOTING LM

o Computer Integrated Manufacturing


- completely automated environment with the
objective of eliminating non-value-added activities
o Value Stream Mapping
- graphically presenting the business process which
includes all the step in the process that are essential to producing
a product
ACCOUNTING IN A LEAN MANUFACTURING
ENVRIONMENT

A. Traditional VS ABC

B. Value Stream Accounting

C. Info System supporting LM


A. TRADITIONAL VS ABC

 method of allocating costs to products and services to facilitate


better planning and control.
 Traditional
- product cause cost one

 ABC
- activities cause costs many
A. TRADITIONAL VS ABC

Disadvantages of Traditional Accounting

1. Inaccurate cost allocations

2. Promotes non-lean behavior

3. Time lag

4. Financial orientation
A. TRADITIONAL VS ABC

Advantages of ABC
1. More accurate costing of products/services, customers, and
distribution channels.
2. Identifying the most and least profitable products and customers.
3. Accurately tracking costs of activities and processes.
4. Equipping managers with cost intelligence to drive continuous
improvements.
5. Facilitating better marketing mix.
6. Identifying waste and non-value-added activities.
A. TRADITIONAL VS ABC

Disadvantages of ABC
1. Too time-consuming and complicated for practical
applications over a sustained period of time.
2. Creates complex bureaucracies within organizations.
A. TRADITIONAL VS ABC

Disadvantages of ABC
1. Too time-consuming and complicated for practical
applications over a sustained period of time.
2. Creates complex bureaucracies within organizations.
VALUE STREAM ACCOUNTING

 captures costs by value stream rather than by


department or activity.
INFORMATION SYSTEMS SUPPORTING LM

A. Materials Requirement Planning


-Automated production planning and control system used to
support inventory management.
Operational Objectives:
1 - Ensure that adequate raw materials are available to the
production process.
2 - Maintain the lowest possible inventory on hand.
3 - Produce production and purchasing schedules and
other information needed to control production
A. MATERIALS
REQUIREMENT
PLANNING
INFORMATION SYSTEMS SUPPORTING LM

B. Manufacturing Resource
Plan (MRP II)
- An extension of MRP that
has evolved beyond the confines
of inventory management
- Both a system and a
philosophy for coordinating a
wide range of manufacturing
activities.
B. MANUFACTURING RESOURCE PLAN
(MRP II)
Benefits from a highly integrated MRP II system:

 Improved customer service


 Reduced inventory investment
 Increased productivity
 Improved cash flow
 Assistance in achieving long-term strategic goals
 Help in managing change
 Flexibility in the production process
INFORMATION SYSTEMS SUPPORTING LM

C. Enterprise Resource Planning


 Integrates departments and functions across a company into one system of
integrated applications that is connected to a single common database.
 Comprised of function-specific modules that reflect industry best practices.
 Supports the information needs of the entire organization
 Can calculate resource requirements, schedule production, manage changes to
product configurations, allow for future planned changes in products, and
monitor shop floor production.
 Provides order entry, cash receipts, procurement, and cash disbursement
functions along with full managerial reporting capability.
THE CONVERSION CYCLE
WEAKNESS

1. Transaction Authorization
- the production planning and control does not authorize the
production activity
- the work center must obtain authorization from PCC to initiate
production
2. Segregation of Duties
- the tasks of transaction authorization and transaction
processing is not separate
- production scheduling should be under PCC dept.
THE CONVERSION CYCLE
WEAKNESS

3. Access Control
- excess materials are immediately scrapped
- to obtain excess quantities requires special authorization
and formal documentation

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