EA23013

SISTEM INFORMASI AKUNTANSI

Perkuliahan Ke – 22 & 23

The Conversion Cycle

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 Learning Objectives
• Understand the basic elements and procedures encompassing a traditional production process.
• Understand the data flows and procedures in a traditional cost accounting system.
• Be familiar with the accounting controls found in a traditional environment.
• Understand the principles, operating features, and technologies that characterize lean
manufacturing.
• Understand the shortcomings of traditional accounting methods in a world-class environment.
• Be familiar with the key features of activity-based costing and value stream accounting.
• Be familiar with the information systems commonly associated with lean manufacturing and world-
class companies.

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 The Traditional Manufacturing Environment
• A company’s conversion cycle transforms (converts) input resources, such as raw
materials, labor, and overhead, into finished products or services for sale.
• Materials requirements planning (MRP) systems are used to determine how
much raw materials are required to fulfill production orders.
• The conversion cycle consists of both physical and information activities related
to manufacturing products for sale.

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 Conversion Cycle in Relation to Other Cycles

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 BATCH PROCESSING SYSTEM
• Documents in the Batch Processing System
• The production schedule is the formal plan and authorization to begin production.
• The bill of materials (BOM) is a document that specifies the types and quantities of the raw materials
and subassemblies used in producing a single unit of finished product.
• A route sheet is a document that shows the production path a particular batch of products follows
during manufacturing.
• The work order (or production order) is a document that draws from bills of materials and route
sheets to specify the materials and production for each batch.
• A move ticket is a document that records work done in each work center and authorizes the
movement of the job or batch from one work center to the next.
• A materials requisition is a document that authorizes the storekeeper to release materials to
individuals or work centers in the production process.

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 DFD of Batch Production Process

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 Production Schedule

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 Bill of Materials

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 Route Sheet

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 Work Order

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 Move Ticket

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 Materials Requisition, Excess Materials Requisition, and Materials Return Ticket

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 BATCH PROCESSING SYSTEM (continued)

• Batch Production Activities

• PRODUCTION PLANNING AND CONTROL
• MATERIALS AND OPERATIONS REQUIREMENTS
• PRODUCTION SCHEDULING
• WORK CENTERS AND STOREKEEPING
• INVENTORY CONTROL: The economic order quantity (EOQ) model is
an inventory model designed to reduce total inventory costs. The
reorder point (ROP) is the lead time multiplied by daily demand.
Safety stock is additional inventories added to the reorder point to
avoid unanticipated stock-out conditions.
• Cost Accounting Activities
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 Batch Production Process

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 Batch Production Process (continued)

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 The Relationship of Total Inventory Cost and Order Quantity

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 Inventory Usage

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 The Use of Safety Stock to Prevent Stock-Outs

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 Cost Accounting Procedures

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 CONTROLS IN THE TRADITIONAL ENVIRONMENT
• Transaction Authorization
• Segregation of Duties
• Supervision
• Access Control
• DIRECT ACCESS TO ASSETS
• INDIRECT ACCESS TO ASSETS
• Accounting Records
• Independent Verification

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 Summary of IT Application Controls

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 Summary of Conversion Cycle Physical Controls

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 World-Class Companies and Lean Manufacturing
• Over the past three decades rapid swings in consumer demands, shorter product
life cycles, and global competition have radically changed the rules of the
marketplace.
• In an attempt to cope with these changes, manufacturers have begun to conduct
business in a dramatically different way.
• The term world-class defines this modern era of business.

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 WHAT IS A WORLD-CLASS COMPANY?
• World-class companies must maintain strategic agility and be able to turn on a
dime.
• World-class companies motivate and treat employees like appreciating assets.
• A world-class company profitably meets the needs of its customers.
• The philosophy of customer satisfaction permeates the world-class firm.
• Lean manufacturing improves efficiency and effectiveness in product design,
supplier interaction, factory operations, employee management, and customer
relations.

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 PRINCIPLES OF LEAN MANUFACTURING
• The Toyota Production System (TPS) is a lean manufacturing system based on the
just-in-time production model.
• The just-in-time (JIT) production model is a philosophy that addresses
manufacturing problems through process simplification.
• Pull Processing
• Pull processing is the principle characterizing the lean manufacturing
approach where products are pulled into production as capacity
downstream becomes available. Products are pulled from the
consumer end (demand).
• Perfect Quality

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 PRINCIPLES OF LEAN MANUFACTURING (continued)

• Waste Minimization
• Inventory Reduction
• Production Flexibility
• Established Supplier Relations
• Team Attitude

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 Techniques and Technologies that Promote Lean Manufacturing
• Modern consumers want quality products, they want them quickly, and they
want variety of choice.
• This demand profile imposes a fundamental conflict for traditional
manufacturers, whose structured and inflexible orientation renders them
ineffective in this environment.
• Manufacturing flexibility is the ability to physically organize and reorganize
production facilities and the employment of automated technologies.

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 PHYSICAL REORGANIZATION OF THE PRODUCTION FACILITIES

• Traditional manufacturing facilities tend to evolve into snakelike sequences of

activities.
• The inefficiencies inherent in this layout add handling costs, conversion time, and
even inventories to the manufacturing process.
• The flexible production system is organized into a smooth-flowing stream of
activities.
• Computer-controlled machines, robots, and manual tasks that comprise the
stream are grouped physically into factory units called cells.

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 The Traditional Factory Layout

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 Flexible Production System

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 AUTOMATION OF THE MANUFACTURING PROCESS
• Traditional Manufacturing
• Islands of Technology
• The term islands of technology describes an environment where
modern automation exists in the form of islands that stand alone
within the traditional setting.
• Computer numerical controlled (CNC) machines can perform
multiple operations with little human involvement. The computer
contains programs for all parts being manufactured by the machine.

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 AUTOMATION OF THE MANUFACTURING PROCESS (continued)

• Computer-Integrated Manufacturing
• Computer-integrated manufacturing (CIM) is a completely
automated environment.
• Automated storage and retrieval systems (AS/RS) are computer-
controlled conveyor systems that carry raw materials from stores to
the shop floor and finished products to the warehouse.
• ROBOTICS
• Computer-aided design (CAD) is the use of computers to design
products to be manufactured.
• Computer-aided manufacturing (CAM) is the use of computers in
factory automation.
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 AUTOMATION OF THE MANUFACTURING PROCESS (continued)

• Value Stream Mapping

• A company’s value stream includes all the steps in the process that
are essential to producing a product.
• A value stream map (VSM) is a graphical representation of the
business process to identify aspects that are wasteful and should be
removed.

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 The Automation Continuum

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 Computer-Integrated Manufacturing System

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 Value Stream Map

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 Accounting in a Lean Manufacturing Environment
• Lean companies require new accounting methods and new information that:
• Shows what matters to their customers (such as quality and service).
• Identifies profitable products.
• Identifies profitable customers.
• Identifies opportunities for improvement in operations and products.
• Encourages the adoption of value-added activities and processes
within the organization and identifies those that do not add value.
• Efficiently supports multiple users with both financial and
nonfinancial information.

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 WHAT’S WRONG WITH TRADITIONAL ACCOUNTING INFORMATION?

• Inaccurate Cost Allocations

• Promotes Nonlean Behavior
• Time Lag
• Financial Orientation

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 Changes in Cost Structure between Different Manufacturing Environments

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 ACTIVITY-BASED COSTING
• Activity-based costing (ABC) is an accounting technique that provides managers
with information about activities and cost objects.
• An activity driver is a factor that measures the activity consumption by the cost
object.
• Advantages of ABC
• Disadvantages of ABC

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 Allocation of Overhead Costs to Products under ABC

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 VALUE STREAM ACCOUNTING
• Value stream accounting is an accounting technique that captures cost data
according to value stream rather than by department.
• Product families share common processes from the point of placing the order to
shipping the finished goods to the customer.

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 Cost Assignment to Value Stream

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 Grouping Products by Families

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 Information Systems That Support Lean Manufacturing
• Materials requirements planning (MRP) are systems used to plan inventory
requirements in response to production work orders.
• Manufacturing resources planning (MRP II) is a system that incorporates
techniques to execute the production plan, provide feedback, and control the
process.
• Enterprise resource planning (ERP) is a system assembled of prefabricated
software components.

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 MATERIALS REQUIREMENT PLANNING
• MRP is an automated production planning and control system used to support
inventory management. Its operational objectives are to:
• Ensure that adequate raw materials are available to the production
process.
• Maintain the lowest possible level of inventory on hand.
• Produce production and purchasing schedules and other information
needed to control production.

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 Overview of MRP System

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 MANUFACTURING RESOURCE PLANNING
• MRP II is an extension of MRP that has evolved beyond the confines of inventory
management.
• MRP II integrates product manufacturing, product engineering, sales order processing,
customer billing, human resources, and related accounting functions.
• Benefits of the MRP II:
• Improved customer service
• Reduced inventory investment
• Increased productivity
• Improved cash flow
• Assistance in achieving long-term strategic goals
• Help in managing change (e.g., new product development or specialized product development
for customers or by vendors)
• Flexibility in the production process

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 The Integration of Manufacturing and Financial Systems within the
MRP II Environment

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 ENTERPRISE RESOURCE PLANNING SYSTEMS
• Electronic data interchange (EDI) is an intercompany exchange of computer-
processable business information in standard format.

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 References
 Hall, J.A. (2019). Accounting information system. 10th
edition. Cengage. (Ch. 7)

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