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= The major purpose of the Conversion Cycle is to

transform raw materials into finished goods
= Specifically, the objective is to ensure that:
= 1) Adequate raw materials and other resources are
available for production, while the investment in such
resources is minimized
= 2) Production costs are minimized through high labor
productivity, full utilization of production equipment,
low levels of scrap and rework, and optimal design of
production layouts and procedures
= 3) WIP inventories are transformed into finished
goods, which are then either warehoused or shipped
on schedule
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= a) Establish levels of product quality and after-sales
service are attained
= 5) Costs for each order or process are accumulated
fully and accurately
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= Customer order
= Bill of materials
= Operations list/Routing slip
= Production schedule
= Production order
= Materials issue slip/Materials requisition
= Labor job-time ticket
= Move ticket/traveler
= Inspection report(s)


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= ata are captured via terminals or micro-based

work-stations using such techniques as keyed-in
alphanumeric codes, inserted badges or cards,
scanned bar codes, or touched monitor screens.
= Preformatted documents are automatically
generated using application software and on-
line data bases.
= Electronic copies of the documents are
maintained in on-line files, and hard-copy
forms are printed only as needed and
requested.
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= The conversion cycle encompasses three

major processing steps:
= Production planning
= Production operations
= Accounting for production
costs
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= 1) The materials requirements relating

to demands for products are determined
beforehand, so that the materials are
transferred to the production areas in time for
production starts
= 2) Production orders are scheduled to
accommodate the manufacturing capacity
= 3) ata are validated upon online entry, so that
errors are detected more quickly and
reprocessing delays due to undetected errors
are reduced
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= a) Inventory and production order

records are updated in a timely manner from
materials requisitions, labor-time entries, and
move tickets
= 5) Accounting-related processing is simplified,
since transactions are posted without sorting to
online files
= 6) Control reports such as cost variance
analyses are prepared for managers
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= ºreater flexibility in meeting the changing

needs of customers
= Savings in the material inventory
investment
= Increased quality in products
= Optimal scheduling of production, with
dynamic adjustments as conditions
change or new orders are received
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= Shorter production cycle times

= Improved productivity of employees and
hence reduced labor costs
= Continuous monitoring of production
operations, with immediate feedback of
control problems as they arise
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= Savings in paperwork costs, since most

interactions are performed via computer
and records are stored electronically
= Better utilization of all production facilities
= ºreater accessibility of information,
including the ability to provide ad hoc
reports for planning and control
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Customer Satisfaction Quality

Service

Availability

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P e rfo rm a n c e P r o d u c t io n c y c le t im e

P r o d u c t y ie ld

P e rc e n ta g e o f s c ra p c o s t
t o d o lla r s o f p r o d u c t
s h ip p e d
E m p lo y e e p r o d u c t iv it y

 ir e c t la b o r v a r ia n c e

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Resource Manufacturing cost as
Management a percentage of dollar
sale
ollar sales per
production employee
Raw materials
inventory turnover
Production output per
square foot of factory
space
Average machine
time in days per
month

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Ôl xi ility v r cycl ti
r r ct
N r f ys
r r cti
sc l
v r ti

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= Employee productivity reports that compare the output

of the operations work center employees against
standard levels of production
= Work center performance reports that reflect the
efficiency of each work center
= Open production order status reports that show which
orders are behind schedule and by how much
= Equipment utilization reports that show the percentage
of downtime for each piece of factory equipment
= Waste reports that show the percentages of scrap,
rework, and rejects for the production orders currently
in process
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= Master Files
= Raw materials
= WIP
= Finished goods
= Transaction Files
= Production order file
= Materials issues file
= Operations/Routing file
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) I c rr c t c s ts c r t ) v rst t t f i v t ry
I I v t ry
) rr rs i r c r i t it i s ) I c rr ct l c s i
f I r Ô i is G s i v t ry r c r s
I v t ry
) l s f r r c ti ) ix - i r c ti
r r i t r c ti sc l , c si ssi l
l ys
4) U t r iz r l s f 4) ix - i r c ti
r c ti r r i t sc l ; c si ssi l
r c ti l ys
) Iss c f x c s s iv r ) s s i ilit y f l s t t r i ls if
i s f f ic i t t it i s f xc s s iv is s , r l y if
t r i ls i t r c ti i s f f ic i t is s
) Ôr l t c r i f l r ) x c s s iv r c ti c s ts
rs t r c ti

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@   
   
 ) F r a u d u le n t c h a r g in g o f
e x c e s s iv e o v e r t im e f o r
p r o d u c t io n e m p lo y e e s
8 ) T h e f t o f in v e n t o r ie s o r s c r a p
9 ) E x c e s s iv e d e la y s o f o r d e r s
b e t w e e n p r o d u c t io n o p e r a t io n s
1 0 ) F a ls if ic a t io n o f f in is h e d -
g o o d s in v e n t o r y r e c o r d s
1 1 ) I m p r o p e r u s e o f c o s t - f lo w
m e t h o d s w it h r e s p e c t t o
in v e n t o r ie s
1 2 ) I n f la t io n o f in v e n t o r y
v a lu e s d u e t o n o t w r it in g d o w n
it e m s
Ô
()  
 ) E x c e s s iv e p r o d u c t io n c o s t s
8) Losses of cash
9 ) E x c e s s iv e p r o d u c t io n c o s t s
a n d p o s s ib le r e v is io n in
s c h e d u le
1 0 ) M is s t a t e m e n t o f in v e n t o r y
v a lu a t io n
1 1 ) M is s t a t e m e n t o f in v e n t o r y
v a lu a t io n
1 2 ) O v e r s t a t e m e n t o f in v e n t o r y
v a lu a t io n
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 ) U l ys i t c ti  ) x c s s iv r c ti c s ts
it s f r c ts t t v
c f c t iv ri
r c ti r ti s
4) I v lv t f i v t ri s, 4) L ss f r t
r c ti f c ilit i s , l r s s ts , i c l i ssi l l ss
r c r s i t r l r - f t
is s t r s

) I t rc ti f t 
) L ss r lt r t i f t
tr s it t vi t
) D yi t t li ) L ss f s l s r v s
r r s l c ft r t
r c ti r r is r c ss
 ) U t r iz rc s f  ) x c s s iv i v t ry
t r i ls i it i t vi t st r c sts
) r k f t ) L ss f t l y i
s rv r r c ssi r rs

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= To ensure that:
= All production orders are properly authorized and
scheduled
= All needed raw materials and other resources are
assigned to production orders promptly and
accurately, and the related costs are accumulated
fully in accordance with the established system of
cost accounting
= All movements of production orders through the
production process are reflected by
acknowledgements at the various work centers
= All finished goods are valued properly
= All inventories are adequately safeguarded
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= Organizational
= ocumentation
= Asset Accountability
= Management Practices
= Authorization
= Access
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= Input Controls
= Processing Controls
= Output Controls
  
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= Authentication
= Authorization
= Accountability
= ata Transmission
= isaster Contingency and
Recovery Plan
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