Accountants need to understand how computer-integrated manufacturing affect operations and cost accounting
Production Cycle
Jamaal Anderson
Ahrizzia Hentsch
Erik Perez
Fredy Pineda
Jonathan Salazar
Andres Sanchez
Production Operations
- Production operations are usually accomplished by various automatic manufacturing processes
Controls that need to be in order to prevent
- Computer-integrated manufacturing :
most of the manufacturing process is performed and monitored by computerized equipment by use of robotics or real-time data collection of manufacturing equipment
- Intended to improve efficiency and reduce costs
Theft:
- Inventories -
- physical access should be restricted and all movements of inventory should be documented through inventory requisitions, or move tickets
- the use of bar codes helps to document products
- document any returned material not used
- segregation of duties is essential to safeguarding inventory
- Fixed assets-
- document the location and condition of asset kept and update it regularly
- need to maintain records of all acquisition costs, improvements, and depreciation to calculate the gain or loss in case of a sale
Planning and Scheduling
To develop a production plan efficient enough to meet existing orders and anticipated short term demand
Controls that need to be in order to prevent
Two common types of
Production Planning
Manufacturing Resource Planning (MRP-II)
extension of materials resource planning that seeks to balance existing production capacity and raw materials needs to meet forecasted sales demands
Often referred to as push manufacturing
Lean Manufacturing
Loss due to fire:
- Physical safeguards such as a fire suppression system to protect both inventory and fixed assets
- Insurance to cover any losses
Disruption of activities:
- backup power sources to ensure that major equipment is not damaged by power shortages
Production Planning Methods
Extends the principles of just-in-time inventory systems to the entire production process to minimize or eliminate inventories of raw materials, work in process, and finished goods
Often referred to as pull manufacturing
Production Order
Master Production Schedule (MPS)
A document authorizing the manufacture of specified quantity of a particular product
Specifies how much of each product is to be produced during the planning period and when that production should occur
"Exploding" Bill of Materials
The planning and scheduling activity produces three other documents...
Controls that need to be in order to prevent
Used to develop detailed timetable that specifies daily production and to see how much raw materials is needed.
Move Tickets
Information about customer orders, sales forecasts, and inventory levels of finished goods is used to determine production levels. The result is...
Materials Requisition
- Authorizes the removal of the necessary quantity of raw materials from the storeroom
- Documents that identify the internal transfer of parts, the location to which they are transferred, and the time of the transfer
Poor performance:
- Proper training will mitigate this threat
- Regularly prepare and review reports on performance
Suboptimal investment in fixed assets:
- Over investing in fixed-assets can create excess costs
- Under investing can impair productivity
- Proper authorization of fixed-asset is a control to ensure expenditures
- Cash outlays, cash inlay, operation costs, cash savings all need to be compared in order to make a decision on whether to acquire the asset or not
Request for proposal:
a request by an organization or department for supplier to bid to supple a fixed asset that processes specific characteristics
once a supplier has been selected the acquisition of the asset should be handled threw the expenditure cycle using the same set of controls
- Overproduction can result in a supply of goods in excess of short-run demands, thereby creating potential cash flow problems because resources are tied up in inventory
- Overproduction also increases the risk of carrying inventory that becomes obsolete
- Accurate production planning requires integrating information about customer orders (from the revenue cycle) with information about purchases from suppliers (from the expenditure cycle), along with information about labor availability (from the HR/Payroll cycle)
- Underproduction can result in lost sales and customer dissatisfaction because of lack of availability of desired items
The Primary threat in the planning and scheduling activity is over- or underproduction.
- Production planning systems can reduce the risk of over- and underproduction
- Proper approval and authorization of production orders is another control to prevent over- and underproduction of specific items
- The risk of unauthorized production orders can be reduced by restricting access to the production scheduling program.
Product Design
Cost Accounting
Product design activity creates two outputs
Bill of materials-
A document that specifies the part number, description, and quantity of each component used in a product
Rate of Change
- A key component to the Cost Accounting System
The Principle Objectives of Cost
Accounting Systems
Is to create a product that meets customer requirements in terms of quality, durability, and functionality while simultaneously minimizing production cost
- Monitor your rates (Don't underestimate the little guy) because they dictate how fast you accumulate costs
A document that specifies the sequence of steps to follow in making a product, which equipment to use, and how long each step should take
Product life-cycle management (PLM)
PLM software can help improve the efficiency and effectiveness of the product design process. PLM software consist of three key components.
Computer-aided design (CAD)
Software to design new products, by digital manufacturing. CAD enables manufactures to design and test virtual 3-D models
Provides easy access to detailed engineering specifications and other product data to facilitate product redesign, modification, and post- sale maintenance
- Monitor your rates (Don't underestimate the little guy) because they dictate how fast you accumulate costs
Allows companies to determine labor, machine, and process requirements to optimally produce items in different facilities across the globe in order to minimize cost
1)To provide Information for Planning, Controlling, and Evaluating the performance of production operations
Poor product design drives up cost in several ways. Using too many unique components when producing similar products
2)To provide accurate cost data about products for use in pricing and product mix decisions
Relevant Accounts for Costing Accounting
Work In Progress Inventory Account
(Developing Total Product Cost)
Assigning Costs to Products
The Natural Flow of Costs through all the Relevant Accounts
(Two Methods)
Inventory Accounts
Three components of product cost
Exhibit 1.1: The Flow of Raw Materials (costs)
Job-Order Costing
- Raw materials (pre-production warehouse)
- Raw material usage (recorded at actual cost)
- Work in progress (factory floor)
Assigns costs to specific production batches, or jobs, and is used when the product or service being sold consists of discretely identifiable items (Ex. Construction, Movies)
- Direct labor or machinery usage (recorded at actual cost)
- Finish goods (post production warehouse)
Producing 12,000 units
Process Costing
Note:
Expense Accounts
- Manufacturing overhead (recorded at an estimated cost)
Assigns costs to each process, or work center, in the production cycle, and then calculated the average cost for all units produced (Ex. Brewery, Coca-Cola)
- Cost of goods sold (finished goods sold to customer)
Raw Material Costs, Labors costs, and Overhead Cost all aggregate into the WIP (Debit side) Account to form the Total Product (a.k.a Manufacturing, or Production) cost
Manufacturing Overhead
"Get it right the first time"
3) To collect and process the information used to calculate the inventory and cost of goods sold values that appear in the company's financial statements
Traditional Costing System
Actual Costing System
(Good for companies with immaterial overhead costs)
Costs designed to reduce the product defect rate
- Inappropriate allocation of overhead Costs
Applies the Actual cost of overhead to products, not an accepted method
- Applies too much overhead to some product and too little overhead to other products which leads to inaccurate pricing of products
Traditional Costing System
Costs associated with testing to ensure that products meet quality standards
Activity-Based Costing Systems
(Good for companies with material overhead costs)
Use volume-driven bases, such as direct labor or machine hours, to apply overhead to products. Many overhead costs, however, do not very directly with overhead
- Automate data collection & Data processing Integrity Controls
- Refines and improves cost allocation under both job-order and process cost systems
Costs associated with reworking, or scrapping, products identified as being defective prior to sales
Activity-Based Costing System
- Time-driven Activity-Based Costing
- Provides the most accurate cost data and results in better product mix and pricing decisions
4) External Failure Costs
It attempts to trace costs to the activities that create them, (such as grinding or polishing ), and only subsequently allocates those costs to products
- Innovative performance metrics
Costs resulting when defective products are sold to customers
- Detailed Cost data improve managements ability to control and manage total costs
Production Cycle Information System
Production Cycle Activities
Four basic activities in the production cycle:
Production cycle- the recurring set of business activities and related data processing operations associated with the manufacture of products.
Production Cycle Information System
- The production cycle information system integrates both operational and financial data from many sources
- Production cycle information system
- Example: developing product specifications
- Inaccurate or invalid data
- Unauthorized disclosure of sensitive information
- Loss or destruction of data
- Production cycle activities
- The engineering department pulls from multiple sources to develop certain product design specifications
- Data processing integrity controls and restriction of access to master data
- Access controls and encryption
- Backup and disaster recovery procedures