Chapter 7-1 Chapter 7 Accounting Information Systems The Conversion Cycle Dr. Hisham Madi.
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Transcript of Chapter 7-1 Chapter 7 Accounting Information Systems The Conversion Cycle Dr. Hisham Madi.
![Page 1: Chapter 7-1 Chapter 7 Accounting Information Systems The Conversion Cycle Dr. Hisham Madi.](https://reader033.fdocuments.us/reader033/viewer/2022061418/5697bfde1a28abf838cb1fd0/html5/thumbnails/1.jpg)
Chapter 7-1
Chapter 7
Accounting Information Systems
The Conversion Cycle
Dr. Hisham Madi
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Chapter 7-2
The Conversion Cycle
Transforms input resources, raw materials, labor, and overhead into finished products or services for sale
Consists of two subsystems: Physical activities – the production system Information activities – the cost accounting system
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Chapter 7-3
Conversion Cycle in Relation to Other Cycles
Revenue CycleExpenditureCycle
Purchase Requisitions
Marketing System
ConversionCycle
SalesForecast
Sales Orders
Labor Usage
General Ledgerand Financial Reporting System
WorkInProcess
FinishedGoods
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Chapter 7-4
The Conversion Cycle
Depending on the type of product being manufactured, a company will employ one of the following production methods:
Continuous processing creates a homogeneous product through a continuous series of standard procedures. Cement and petrochemicals are produced by this manufacturing method.
Make-to-order processing involves the fabrication of discrete products in accordance with customer specifications
Batch processing produces discrete groups (batches) of product. Each item in the batch is similar and requires the same raw materials and operations
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Chapter 7-5
The Conversion Cycle
Batch Processing Systemconsists of four basic processes: plan and control production, perform production operations, maintain inventory control, and perform cost accounting
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Chapter 7-6
The Conversion Cycle
Documents in the Batch Processing System
The production schedule Is the formal plan and authorization to begin production. This document describes the specific products to be made, the quantities to be produced in each batch, and the manufacturing timetable for starting and completing production.
The bill of materials (BOM),
Specifies the types and quantities of the raw material (RM) and subassemblies used in producing a single unit of finished product.
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Chapter 7-7
The Conversion Cycle
Documents in the Batch Processing System
A route sheetthe route sheet specifies the sequence of operations (machining or assembly) and the standard time allocated to each task.
The work order(or production order) draws from BOMs and route sheets to specify the materials and production (machining, assembly, and so on) for each batch. These, together with move tickets (described next), initiate the manufacturing process in the production departments
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Chapter 7-8
The Conversion Cycle
Documents in the Batch Processing System
A 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.
A materials requisition authorizes the storekeeper to release materials (and subassemblies) to individuals or work centers in the production process. This document usually specifies only standard quantities.
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Chapter 7-9
The Conversion Cycle
Batch Production SystemProduction Planning And ControlThis consists of two main activities: specifying materials and operations requirementsproduction scheduling
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Chapter 7-10
The Conversion Cycle
Batch Production SystemMaterials And Operations Requirementsis the difference between what is needed and what is available in the RM inventory. This information comes from analysis of inventory on hand, the sales forecast, engineering specifications
Operations requirements the assembly and/or manufacturing activities to be applied to the product
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Chapter 7-11
Batch Production SystemProduction Planning And ControlCoordinates the production of many different batches.The schedule is influenced by time constraints, batch size, and specifications derived from BOMs and route sheetsThe scheduling task also produces work orders, move tickets, and materials requisitions for each batch in the production run.A copy of each work order is sent to cost accounting to set up a new work-in-process (WIP) account for the batch
The Conversion Cycle
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Chapter 7-12
Batch Production System
Work Centers and Storekeeping Production operations begin when work centers obtain raw
materials from storekeeping. When the task is complete at a particular work center, the
supervisor or other authorized person signs the move ticket, which authorizes the batch to proceed to the next work center.
To evidence that a stage of production has been completed, a copy of the move ticket is sent back to production planning and control to update the open work order file
The finished product along with a copy of the work order is sent to the finished goods (FG) warehouse
The Conversion Cycle
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Chapter 7-13
Batch Production System
Work Centers and StorekeepingAlso, a copy of the work order is sent to inventory control to update the FG inventory records
The Conversion Cycle
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Chapter 7-14
Batch Production System
Inventory Control.
The inventory control function consists of three main activities
First, it provides production planning and control with status reports on finished goods and raw materials inventory.
Second, the inventory control function is continually involved in updating the raw material inventory records from materials requisitions, excess materials requisitions, and materials return tickets.
Finally, upon receipt of the work order from the last work center, inventory control records the completed production by updating the finished goods inventory records
The Conversion Cycle
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Chapter 7-15
The Conversion Cycle
Batch Production System
Inventory Control
An objective of inventory control
is to minimize total inventory cost while ensuring that adequate inventories exist to meet current demand.
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Chapter 7-16
Designing Reports
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Chapter 7-17
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Chapter 7-18
Sales Forecast
Inventory Status Report
Engineering Specifications BOM and Route Sheets
Raw Materials Requirements
(Purchase Requisitions)
Operations Requirements
Production SchedulingWork OrdersMove TicketsMaterials RequisitionsOpen Work Orders
Cost AccountingWork CentersJob TicketsTime CardsCompleted Move Tickets
Payroll
Production Planning and Control
Prod. Plan. and Control
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Chapter 7-19
Upon Completion of the Production Process…
Finished Productand Closed Work Order
Finished Goods Warehouse
Closed Work Order
Inventory Control
Status Report of Raw Materials and Finished Goods
Journal Voucher
Prod. Plan. and Control
General Ledger
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Chapter 7-20
The Conversion Cycle
Cost Accounting Activitiesbegins when the production planning and control department sends a copy of the original work order to the cost accounting departmentCost accounting clerk creates a new cost record for the batch and files in WIP fileThe records are updated as materials and labor are used.Receipt of last move ticket signals completion of the production process clerk removes the cost sheet from WIP file prepares a journal voucher to transfer balance to a finished goods
inventory account and forwards to the General Ledger department
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Chapter 7-21
Inventory Controlmaterials requisitions
Work Centersjob ticketscompleted move tickets
STANDARDS
COST ACCOUNTANTS
Update WIP accountsDLDMMfg. OH.
Compute Variances
Elements of the Cost Accounting System
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Chapter 7-22
Internal Controls
Transaction authorizations work orders – reflect a legitimate need based on
sales forecast and the finished goods on hand move tickets – signatures from each work station
authorize the movement of the batch through the work centers
materials requisitions – authorize the warehouse to release materials to the work centers
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Chapter 7-23
Internal Controls
Segregation of dutiesInventory control maintains accounting records for RM and FG inventories. This activity is kept separate from the materials storeroom and from the FG warehouse functions, which have custody of these assets.the cost accounting function accounts for WIP and should be separate from the work centers in the production process
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Chapter 7-24
Internal Controls
SupervisionThe supervisors in the work centers oversee the usage of RM in the production process. This helps to ensure that all materials released from stores are used in production and that waste is minimized. Employee time cards and job tickets must also be checked for accuracySupervisors also observe and review timekeeping activities. This promotes accurate employee time cards and job tickets
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Chapter 7-25
Internal Controls
Access Control
Direct Access To Assets. controlled access to storerooms, production work
centers, and finished goods warehouses Control methods used include identification badges,
security guards, observation devices, and various electronic sensors and alarms
quantities in excess of standard amounts require approval
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Chapter 7-26
Internal Controls
Indirect Access To AssetsAssets, such as cash and inventories, can be manipulated through access to the source documents that control them controlled use of materials requisitions, excess materials
requisitions, and employee time cards
Accounting Records
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Chapter 7-27
Internal Controls
the objective of this control technique is to establish an audit trail for each transaction work orders cost sheets move tickets job tickets material requisitions WIP and finished goods files