AE20-007.docx - College of Saint Lawrence Inc. Balagtas ...

THE CONVERSION CYCLE
 Transforms input resources, raw materials,
labor, and overhead into finished products or
services for sale
 Consists of two subsystems:
o Physical activities – the production
system
o Information activities – the cost
accounting system
Production System
- Involves the planning, scheduling, and control
of the physical product through the
manufacturing process
 determining
raw materials
requirements
 authorizing the
release of raw
materials into production
 authorizing work to be conducted in the production process
 directing the movement of work through the various stages of production
Production Methods
1. Continuous Processing creates a homogeneous product through a continuous series of standard procedures.
2. Batch Processing produces discrete groups (batches) of products.
3. Make-to-Order Processing involves the fabrication of discrete products in accordance with customer specifications
Overview: Traditional Batch Production Model
-consists of four basic processes:
1. plan and control production
2. perform production operations
3. maintain inventory control
4. perform cost accounting
Batch Production System
A. Production Planning and Control
 Materials and operations requirements
 Production scheduling
B. Materials and Operations Requirements
 Materials requirement – the difference between what is needed and what is available in inventory
 Operations requirements – the assembly and/or manufacturing activities to be applied to the product
C. Production Scheduling
 Coordinates the production of multiple batches
 Influenced by time constraints, batch size, and other specifications
D. Work Centers and Storekeeping
 Production operations begin when work centers obtain raw materials from storekeeping.
 It ends with the completed product being sent to the finished goods (FG) warehouse .
E. Inventory Control
 Objective: minimize total inventory cost while ensuring that adequate inventories exist of production demand
 Provides production planning and control with status of finished goods and raw materials inventory
 Continually updates the raw material inventory during production process
 Upon completion of production, updates finished goods inventory
EOQ Inventory Model
Very simple too use, but assumptions are not always valid
 demand is known and constant
 ordering lead time is known and constant
 total cost per year of placing orders decreases as the order
quantities increase
 carrying costs of inventory increases as quantity of orders
increases
 no quantity discounts
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College of Saint Lawrence, Inc.
Balagtas, Bulacan
A E 2 0 – 0 0 7 : A C C O U N T I N G I N F O R M A T I O N S
Y S T E M
THE CONVERSION CYCLE

Information: Documents in the Batch Production System
1. Sales Forecast - expected demand for the finished goods
2. Production Schedule - production plan and authorization to produce
3. Bill of Materials (BOM) - specifies the types and quantities of the raw materials and subassemblies used to produce a
single finished good unit
4. Route Sheet