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The Production Cycle

The Production Cycle. Chapter 14. Learning Objectives. Describe the major business activities and related information processing operations performed in the production cycle.

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The Production Cycle

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  1. The Production Cycle Chapter 14

  2. Learning Objectives • Describe the major business activities and related information processing operations performed in the production cycle. • Identify major threats in the production cycle and evaluate the adequacy of various control procedures for dealing with those threats. • Explain how a company’s cost accounting system can help it achieve its manufacturing goals. • Discuss the key decisions that must be made in the production cycle and identify the information required to make those decisions.

  3. Production Cycle Process • Product Design • Source documents: bill of materials and operations list • Planning and Scheduling • Source documents: Master production schedule, production order, and materials requisition • Production Operations • Cost Accounting

  4. Production Cycle Process

  5. 1. Product Design 2. Planning and Scheduling Threats Controls • Poor product design resulting in excess costs • Over and under production 1 a. Analysis of costs arising from product design choices b. Analysis of warranty and repair costs 2 a. Production planning systems b. Review and approve production orders and schedules c. Restrict access to orders and schedules

  6. 3. Production Operations Threats Controls • Inventory theft • Fixed asset theft • Poor performance • Suboptimal investments in fixed assets • Loss of inventory or fixed assets due to fire or disasters • Disruption of operations 1 a. Restrict physical access b. Document movement of inventory c. Segregation of custody duties from authorization and recording 2 a. Restrict access to fixed assets b. Keep detailed records of fixed assets including disposals 3 a. Performance reporting 4 a. Solicit competitive bids 5 a. Insurance and physical safeguards 6 a. Backup and disaster recovery plans

  7. 4. Cost Accounting Threats Controls • Inaccurate cost data • Inappropriate allocation of overhead costs • Misleading reports 1 a. Source data automation b. Data processing integrity controls 2 a. Time-driven activity-based costing 3 a. Performance metrics

  8. Cost Accounting Systems Provide information for planning, controlling, and evaluating the performance of production operations Provide accurate cost data about products for use in pricing and product mix decisions Collect and process the information used to calculate the inventory and cost of goods sold values that appear in organization’s financials

  9. Key Terms • Production cycle • Bill of materials • Operations list • Manufacturing resource planning (MRP-II) • Lean manufacturing • Master production schedule (MPS) • Production order • Materials requisition • Move ticket • Computer-integrated manufacturing (CIM) • Request for proposal (RFP) • Job-order costing • Process costing • Job-time ticket • Manufacturing overhead • Activity-based costing • Cost driver • Throughput

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