OTHER BUSINESS

PROCESSES
• CONVERSION PROCESS
• FINANCING PROCESS
• HUMAN RESOURCE PROCESS
 CONVERSION PROCESS
 It is typically associated with manufacturing enterprises.
 Its basic purpose is to convert direct material, direct labor, and
manufacturing overhead into a finished product.
Direct material – refers to major kinds of materials in a product
Direct labor – refers to the salaries, wages, and benefits of
assembly-line workers
Manufacturing overhead – comprises everything else in the
production
 Job costing – units of product are differentiated from one another
 Process costing – produces undifferentiated goods
 Conversion Process Documents
Form Name Purpose Originator Recipient

Materials Requests raw material from the

Production Warehouse
requisition warehouse for production
Job cost sheet Summarizes the material, labor, and
Production Accounting
overhead costs in a job costing system
Labor time Accumulates labor data (time, pay rate,
Production Accounting
ticket total labor cost)
Production Summarizes cost and quantity information
Production Accounting
cost report in a process costing system
Materials Documents the movement of materials
Warehouse Production
move ticket from the warehouse into production
 AIS Elements
Some common conversion process entries

JOB COSTING SYSTEM

 Purchasing raw materials  Selling finished goods
 Raw material inventory  Accounts receivable
Accounts payable Cost of goods sold
Sales
 Accumulating costs by job Job account
 Job account (ex.: Job 123A)
Raw materials inventory
Wages payable (for direct labor cost)
Manufacturing overhead (for applied
overhead)
AIS Elements
Some common conversion process entries

PROCESS COSTING SYSTEM

 Processing costs from Process A to Process B
 Work in Process – Process B
Work in Process – Process A

 Transferring costs of completed units to finished goods

 Finished goods
Work in Process – Process B
Risks and Controls in the Conversion Process

Risk Control
Special storage conditions
Damage to raw
Backup power supplies for heating and
materials
cooling
Secured storage areas
Loss/theft of raw
Adequate documentation
materials
Separation of duties
Workers’ compensation insurance
Worker injuries Safety training
Protective clothing
 FINANCING PROCESS
DEBT FINANCING
 Amounts borrowed must be paid, usually with interest.
 Interest is, in most cases, a tax deduction.
 It does not dilute ownership of the business, but can throw a firm
into bankruptcy if not repaid on time.

EQUITY FINANCING
 Amounts do not have to be repaid.
 Dividends are optional, but are not a tax-deductible expense in
most cases.
 Equity investors become owners of the organization.