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The Production Cycle

Chapter 14

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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 companys 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.
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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

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Production Cycle Process

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1. Product Design
2. Planning and Scheduling

Threats Controls
1. Poor product design
resulting in excess costs
1 a. Analysis of costs arising from
2. Over and under production
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
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3. Production Operations
Threats Controls
1. Inventory theft 1 a. Restrict physical access
2. Fixed asset theft b. Document movement of
3. Poor performance inventory
4. Suboptimal investments in c. Segregation of custody duties
fixed assets from authorization and
5. Loss of inventory or fixed recording
assets due to fire or disasters 2 a. Restrict access to fixed assets
6. Disruption of operations 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
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4. Cost Accounting

Threats Controls
1. Inaccurate cost data
2. Inappropriate allocation of
overhead costs
3. Misleading reports

1 a. Source data automation


b. Data processing integrity
controls
2 a. Time-driven activity-based
costing
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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 organizations financials

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Key Terms

Production cycle Computer-integrated


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

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