CHAPTER 7 3.
Production Scheduling - coordinates the
“The Conversion Cycle”
- transforms input resources, RM, labor and overhead
into finished products/services
Two Subsystems:
1. Physical Activities - production system
2. Information Activities - cost accounting system
PRODUCTION METHODS
1. Continuous Processing - creates a homogeneous
product through a continuous series of standard
procedures
2. Batch Processing - produce batches of products
3. Make-to-Order Processing - discrete products in
accordance with customer specifications
PRODUCTION SYSTEM - involves planning,
scheduling and control of the physical product
through the manufacturing process
DOCUMENTS IN THE BATCH PRODUCTION
SYSTEM
1. Sales forecast - expected demand for the finished
goods
2. Production Schedule - production plan and
authorization to produce
3. Bill of Materials - specifies the quantities of RM
and sub-assemblies used to produce a single finished
good unit
4. Route Sheet - shows the production path that a
batch will follow in the manufacturing process
5. Work Order - uses the BOM and route sheet to
specify the exact materials and production processes
for each batch
6. Move ticket - authorizes the movement of the
batch
7. Materials Requisition - authorizes inventory
warehouse to release the RM
TRADITIONAL BATCH PROCESSING MODEL
(Four Basic Processes)
1. Production Planning and Control
- materials and operations requirements and
production schedule
2. Materials and Operations Requirements
*Materials Requirement - difference between what is
needed and what is available in the inventory
*Operations Requirements - the assembly and/or
manufacturing activities to be applied to the product
production of different batches
4. Work Centers and Storekeeping
- production operations begin when work centers
obtain RM from storekeeping
- ends with completed product sent to the finished
goods warehouse
5. Inventory Control - to minimize the total inventory
cost while ensuring that adequate inventories exist of
production demand
Economic Order Quantity Inventory Model
- total cost of placing order decreases as order
quantities increase
- carrying costs of inventory increases when quantity
of orders increases
COST ACCOUNTING SYSTEM
- records the financial effects of the events occurring
in the production process
- initiated by the work order
- Cost Accounting Clerk creates a new cost record for
the batch and files in the WIP file
INTERNAL CONTROL OF CONVERSION
CYCLE
1. Transaction Authorizations - work orders, move
tickets, material requisitions
2. Segregation of Duties - production planning and
control dept is separate from the work centers
- internal control is separate from materials storeroom
and FG warehouse
- cost accounting functions for WIP should be
separate from work centers in the production process
3. Supervision - existence of work center supervisors
- employee time cards and job tickets are checked for
accuracy
WORLD-CLASS COMPANIES
- continuously pursue improvements in all aspects of
their operations
- highly customer oriented
- have undergone fundamental changes from the
traditional production model
- often adopt lean manufacturing model
LEAN MANUFACTURING
- method of minimizing the waste while maximizing
productivity
Principles of Lean Manufacturing
1. Pull Processing - products are pulled from the
consumer end, not pushed from the production end
2. Perfect Quality - pull processing requires zero
defects
3. Waste Minimization - activities that do not add
value or maximize the use of scarce resources are
eliminated
4. Inventory Reduction - hallmark of lean
manufacturing
5. Production Flexibility - reduce setup time to a
minimum, allowing for greater diversity of products,
without sacrificing efficiency
6. Established Supplier Relations
7. Team Attitude - each employee must be vigilant of
problems that threaten the continuous flow of the
production line
4. Financial Orientation
ACTIVITY-BASED COSTING
- provides managers with info about activities and
cost objects
- activities cause costs and products create a demand
for activities
VALUE STREAM ACCOUNTING
Value Stream - all the steps in a process that are
essential to producing a product
- captures costs by value stream rather than by
department or activity
- cut across functions and departments

Achieve Production Flexibility by means of:

1. Physical Reorganization of Production Facilities -
inefficiencies in traditional plant layouts increase
handling costs, conversion time and excess
inventories
- employees tend to feel ownership over their
stations, contrary to the team concept
- reorganization is based on the flows through cells
which shorten the physical distance between
activities

2. Employments of Automated Technologies

a. Island of Technology - modern automation exist in
form of islands/stand-alone that employs CNC that
can perform multiple operations with less human
intervention
b. Computer Integrated Manufacturing - completely
automated environment that employs automated
storage and retrieval systems
c. Robotics - use CNC machines that are useful in
performing hazardous, difficult and monotonous
tasks
d. Computer-Aided Design - increase engineer’s
productivity and accuracy
e. Computer-Aided Manufacturing - uses computers
to control the physical manufacturing process

3. Use of alternative accounting models

4. Use of advanced information systems

WHAT’S WRONG WITH TRADITIONAL

ACCOUNTING INFORMATION
1. Inaccurate cost allocations
2. Promotes non-lean behavior
3. Time Lag