the conversion cycle
the conversion cycle
CONVERSION CYCLE
CHAPTER 7
CONVERSION CYCLE
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
4 Basic Processes
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
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
A. Traditional VS ABC
ABC
- activities cause costs many
A. TRADITIONAL VS ABC
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
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:
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