Accounting information systems controls and process 2nd tunnwe weickgenannt chapter 11

Perpetual inventory systems involve  recording purchases as raw materials inventory,  recording all components of work-in-process for inventories in various stages of production, and

SECOND EDITION

Conversion Processes and Controls

1. Basic features of conversion processes

2. The components of the logistics function

3. Cost accounting reports generated by conversion processes

4. Risks and controls in conversion processes

5. IT systems of conversion processes

6. Ethical issues related to conversion processes

7. Corporate governance in conversion processes

Study Objectives

Study Objectives

Real World

Real World

Nissan Motor Company’s automobile plant near Jackson,

Mississippi, has cutting-edge technology and robotic assemblers

“Assembly lines are powered by enormous robots; at one stop in the line, a bay of over 25 robots each make 12 welds per second

Suppliers are tied into the line by computers; parts actually arrive in the order they’ll be used.”

The complex technology allows Nissan to handle four different

models in random order and to finish a vehicle in 13 hours The plant can produce 400,000 vehicles in a five-day period with two shifts

operating.

Conversion processes involve activities related to the

transformation of resources into goods or services

Basic Features of Conversion Processes

Basic Features of Conversion Processes

Major activities within this process include

 Optimizing use of employees, property, and inventories,

 Controlling production flows,

 Ensuring product quality, and

 Preparing related cost accounting and financial accounting

records.

Basic Features of Conversion Processes

Basic Features of Conversion Processes

Exhibit 11-1

Conversion Processes within the Overall System

Basic Features of Conversion

Processes

Basic Features of Conversion

Processes

Basic Features of Conversion Processes

Basic Features of Conversion Processes

Exhibit 11-2

Overview of the

Conversion Processes

Manufacturing has changed in recent years as a result of

each of the following factors except:

a globalization

b technological advances

c increased competition

d lack of economic prosperity

Basic Features of Conversion Processes

Basic Features of Conversion Processes

Concept Check

Components of the Logistics Function

Components of the Logistics Function

Logistics is the logical, systematic flow of resources

throughout the organization.

Three primary components:

Components of the Logistics Function

Components of the Logistics Function

Components of the Logistics Function

Components of the Logistics Function

Exhibit 11-3

Components of the Logistics Function

Components of the Logistics Function

Components of the Logistics Function

Operations may be performed by :

 Custom, made-to-order processing Exhibit 11-3Components of the

Logistics Function

Exhibit 11-5

Production Process Map

See next slide for larger image.

Components of the Logistics Function

Components of the Logistics Function

Components of the Logistics Function

Components of the Logistics Function

Exhibit 11-5

Production Process Map

Components of the Logistics Function

Components of the Logistics Function

Exhibit 11-5

Production Process Map

The term conversion processes is often used synonymously with

a operations.

b production.

c manufacturing.

d all of the above.

Components of the Logistics Function

Components of the Logistics Function

Concept Check

Which of the following activities is not part of the planning

component of the logistics function?

a Research and development

b Capital budgeting

c Human resource management

d Scheduling

Components of the Logistics Function

Components of the Logistics Function

Concept Check

Which of the following terms relates to the control of

materials being held for future production?

a Routing

b Work-in-process

c Stores

d Warehousing

Components of the Logistics Function

Components of the Logistics Function

Concept Check

When additional procedures are necessary to bring a

defective product up to its required specifications, this is

Components of the Logistics Function

Components of the Logistics Function

Concept Check

A firm expects to sell 1000 units of its best-selling product in the coming year Ordering costs for this product are $100 per order, and carrying costs are $2 per unit Compute the

optimum order size, using the EOQ model.

a 10 units

b 224 units

c 317 units

d 448 units

Components of the Logistics Function

Components of the Logistics Function

Concept Check

Cost Accounting Reports Generated by

Conversion Processes

Cost Accounting Reports Generated by

Conversion Processes

Standard costs are expected costs based on projections

of a product’s required resources.

Perpetual inventory systems involve

 recording purchases as raw materials inventory,

 recording all components of work-in-process for inventories

in various stages of production, and

 recording total cost of sales for products completed and

sold.

Cost Accounting Reports Generated by

Conversion Processes

Cost Accounting Reports Generated by

Conversion Processes

Periodic inventory systems involve

 updating the inventory and

 cost of sales accounts

only at the end of the period.

Variances represent the differences between actual costs

and the standard costs applied.

Risks and Controls in Conversion

► Initiation of production orders

► Issuance of materials into production

areas

Segregation of duties

Risks and Controls in Conversion

Processes

Risks and Controls in Conversion

Processes

Common procedures within the conversion process:

Security of assets and documents

Independent checks and reconciliation

► Physical inventory reconciliation

Cost-benefit considerations

Which of the following internal controls is typically associated with the

maintenance of accurate inventory records?

a Performing regular comparisons of perpetual records with recent

costs of inventory items

b Using a just-in-time system to keep inventory levels at a minimum

c Performing a match of the purchase request, receiving report, and

purchase order before payment is approved

d Using physical inventory counts as a basis for adjusting the

The goal of a physical inventory reconciliation is to

a determine the quantity of inventory sold.

b compare the physical count with the perpetual records.

c compare the physical count with the periodic records.

d determine the quantity of inventory in process.

Risks and Controls in Conversion

Processes

Risks and Controls in Conversion

Processes

Concept Check

IT Systems of Conversion Processes

IT Systems of Conversion Processes

Computerized systems may provide the following benefits:

 Systematic scheduling that allows for greater flexibility and

increased efficiencies

 Timely transfer of inventories due to the automatic

notification features

 Validation of data entries

 Automatic updating of inventory status reports

 Automatic preparation of financial accounting entries and

cost accounting reports

IT Systems of Conversion Processes

IT Systems of Conversion Processes

Additional trends that enhance the conversion process:

 Just-in-time (JIT) production systems

 Radio-frequency identification (RFID)

Real World

Real World Jean Larrivée Guitars designs and manufactures

steel string guitars and mandolins known to produce a distinctively clear sound because of their great structural integrity

due to the company’s symmetrical bracing system There are dozens of

models manufactured; however, before any of them can be made into an

actual product, its design is worked out in CAD drawings The digitized data

from the CAD process is then brought to the factory to be replicated Larrivée uses CAD to design many pieces of its instruments, including the neck,

bridge, fingerboard, kurfing, rosette, and inlays For the neck alone,

approximately 450 hours of programming time were required to precisely

design the piece that would appease both professional guitarists and

beginners Even this considerable investment of time is merely a fraction of

what would have been required to achieve such precision without

computerization In addition, through CAD, the cost of drawing blueprints is

greatly reduced Once the lines of an instrument are drawn in CAD, Larrivée

uses a CAM system for cutting the parts Cutting requires extreme precision, yet Larrivée’s use of CAM can actually improve quality and increase

efficiency by machining six fingerboards at a time This makes it possible to

free up human resources for more challenging (but less precise) tasks

Real World

Real World Wild West Motor Company, a custom motorcycle

manufacturer, uses Alias Studio software provided by Autodesk, Inc., for its CAD and CAM processes This

software has played an instrumental role in helping Wild West double

production in recent years and spark a corresponding increase in sales

Wild West uses CAD software to prepare digital models of motorcycle tanks and seats These models are imported into

the CAM system to create solid models of the actual parts or as a starting point for a mold or die The integration of the two systems allows for easy back-and-forth transfers for making refinements Paul Seiter, Wild West’s founder, estimates that the company saves $75,000, plus weeks—or

months—of engineering and production time, for each project now being

designed and tooled in-house (compared with the cost of outsourcing

those projects) Furthermore, Seiter has challenged the company’s

engineers to use the software to create innovative styles to incorporate

into the company’s products in order to build a competitive advantage

IT Systems of Conversion Processes

IT Systems of Conversion Processes

Match IT systems on left with their definitions on the right:

a A network including production equipment, computer terminals, and accounting systems

b Electronic workstation including advanced graphics and 3-D modeling of production processes

c Automated scheduling of manufacturing resources, including scheduling, capacity, and forecasting functions

d The minimization of inventory levels by the control of production so that products are produced on a tight schedule in time for their sale

e A single software system that includes all manufacturing and related accounting applications

f Automated scheduling of production orders and materials movement

g Production automation, including use of computers and robotics

h The use of tiny tags affixed to inventory items to automatically monitor movement and account for the various stages of processing

IT Systems of Conversion Processes

IT Systems of Conversion Processes

Match IT systems on left with their definitions on the right:

a A network including production equipment, computer terminals, and accounting systems

b Electronic workstation including advanced graphics and 3-D modeling of production processes

c Automated scheduling of manufacturing resources, including scheduling, capacity, and forecasting functions

d The minimization of inventory levels by the control of production so that products are produced on a tight schedule in time for their sale

e A single software system that includes all manufacturing and related accounting applications

f Automated scheduling of production orders and materials movement

g Production automation, including use of computers and robotics

h The use of tiny tags affixed to inventory items to automatically

IT Systems of Conversion Processes

IT Systems of Conversion Processes

Match IT systems on left with their definitions on the right:

a A network including production equipment, computer terminals, and accounting systems

b Electronic workstation including advanced graphics and 3-D modeling of production processes

c Automated scheduling of manufacturing resources, including scheduling, capacity, and forecasting functions

d The minimization of inventory levels by the control of production so that products are produced on a tight schedule in time for their sale

e A single software system that includes all manufacturing and related accounting applications

f Automated scheduling of production orders and materials movement

g Production automation, including use of computers and robotics

h The use of tiny tags affixed to inventory items to automatically monitor movement and account for the various stages of processing

IT Systems of Conversion Processes

IT Systems of Conversion Processes

Match IT systems on left with their definitions on the right:

a A network including production equipment, computer terminals, and accounting systems

b Electronic workstation including advanced graphics and 3-D modeling of production processes

c Automated scheduling of manufacturing resources, including scheduling, capacity, and forecasting functions

d The minimization of inventory levels by the control of production so that products are produced on a tight schedule in time for their sale

e A single software system that includes all manufacturing and related accounting applications

f Automated scheduling of production orders and materials movement

g Production automation, including use of computers and robotics

h The use of tiny tags affixed to inventory items to automatically

IT Systems of Conversion Processes

IT Systems of Conversion Processes

Match IT systems on left with their definitions on the right:

a A network including production equipment, computer terminals, and accounting systems

b Electronic workstation including advanced graphics and 3-D modeling of production processes

c Automated scheduling of manufacturing resources, including scheduling, capacity, and forecasting functions

d The minimization of inventory levels by the control of production so that products are produced on a tight schedule in time for their sale

e A single software system that includes all manufacturing and related accounting applications

f Automated scheduling of production orders and materials movement

g Production automation, including use of computers and robotics

h The use of tiny tags affixed to inventory items to automatically monitor movement and account for the various stages of processing

IT Systems of Conversion Processes

IT Systems of Conversion Processes

Match IT systems on left with their definitions on the right:

a A network including production equipment, computer terminals, and accounting systems

b Electronic workstation including advanced graphics and 3-D modeling of production processes

c Automated scheduling of manufacturing resources, including scheduling, capacity, and forecasting functions

d The minimization of inventory levels by the control of production so that products are produced on a tight schedule in time for their sale

e A single software system that includes all manufacturing and related accounting applications

f Automated scheduling of production orders and materials movement

g Production automation, including use of computers and robotics

h The use of tiny tags affixed to inventory items to automatically

IT Systems of Conversion Processes

IT Systems of Conversion Processes

Match IT systems on left with their definitions on the right:

a A network including production equipment, computer terminals, and accounting systems

b Electronic workstation including advanced graphics and 3-D modeling of production processes

c Automated scheduling of manufacturing resources, including scheduling, capacity, and forecasting functions

d The minimization of inventory levels by the control of production so that products are produced on a tight schedule in time for their sale

e A single software system that includes all manufacturing and related accounting applications

f Automated scheduling of production orders and materials movement

g Production automation, including use of computers and robotics

h The use of tiny tags affixed to inventory items to automatically monitor movement and account for the various stages of processing