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Chapter 14: The Production Cycle
Chapter 14: The Production Cycle
Romero, Lester V.
BSA 3-11
–What are the basic business activities and data processing operations that are
–What decisions need to be made in the production cycle, and what information
–How can the company’s cost accounting system help in achieving the entity’s
objectives?
–What are the major threats in the production cycle and the controls that can
• The production cycle is a recurring set of business activities and related data
• Information flows to the production cycle from other cycles. The revenue cycle
provides information on customer orders and sales forecasts for use in planning
production and inventory levels. The expenditure cycle provides information about
raw materials acquisitions and overhead costs. The human resources/payroll cycle
• Information also flows from the expenditure cycle. The revenue cycle receives
information from the production cycle about finished goods available for sale. The
expenditure cycle receives information about raw materials needs. The human
resources/payroll cycle receives information about labor needs. The general ledger
• Decisions that must be made in the production cycle include decisions on product
• Product Design
• Production Operations
• Cost Accounting
A. Product Design
• Goal: Is to create a product with quality, durability, functionality - while minimizing costs
recipe
Threats: Controls:
1. Poor product design 1. accountants participate in product
(excess costs) design choices
• Simulation Software
Products vary in size, shape, complexity, and usage so it’s hard to generalize
anything about product design. The processes by which companies create new
products, however, are typically the same. First they define what the product will do
(product specifications), and then they capture all of the things that will define the
• Once that has been agreed upon, the design team creates detailed designs and
tests these burgeoning product ideas to see if they actually behave in the real world
the way in which they are designed. When or if they don’t, changes are made to the
design and they are tested again. This testing was once conducted using physical
• Today this process is very different and more efficient, thanks to virtual testing using
simulation software. Digital models are now put through their paces in virtual
(FEA) or computational fluid dynamics (CFD). Often later in the cycle, physical
prototyping testing is used to confirm the simulation results so product designs can
• Goal: Develop a production plan efficient enough to meet existing orders and
anticipated short-term demand while minimizing inventories of both raw materials and
finished goods
Threats: Controls:
1. Poor product design 1. a. Analysis of costs arising from product
resulting in excess costs design choices
2. Over and under
b. Analysis of warranty and
production
repair costs
• Lean Manufacturing
• MRPII
-an extension of an MRP - seeks to balance existing production capacity and raw
• MPS
-master production schedule -how much of each product is to be produced during the
planning period and when the production should occur -"explode" MPS -
individual/immediate RM requirements
• Production Order
end of process
• Materials requisition
• Move ticket
C. Production Operations
• Method: CIM
Controls:
Threats:
1. a. Restrict physical access
1. Inventory theft
b. Document movement of
2. Fixed asset theft inventory
3. a. Performance reporting
D. Cost Accounting
• Goals:
production operations
2. to provide accurate cost data about products for use in pricing and product mix
decisions
3. to collect and process the information used to calculate the inventory and cost of
Threats: Controls:
1. Inaccurate cost data 1. a. Source data automation
3. a. Performance metrics
• Job order costing -assigns costs to specific production batches, or jobs, and is used when
• Process costing -assigns costs to each process or work center in the production cycle and
ex. cost of water, power, utilities, rent, insurance, taxes on factory plan, salary of factory
supervisors
• Activity based costing -can refine and improve cost allocations under job order and
-attempts to trace costs to the activities that create them, such as grinding or polishing, and
2. activity based cost systems use a greater number of cost pools to accumulate indirect
-Product-related overhead - related to the diversity of the company's product line. R+D,
3. activity based cost systems attempt to rationalize the allocation of overhead to products
OVERALL BENEFITS:
1. more accurate cost data result in better product mix and pricing decisions
2. more detailed cost data improve management's ability to control and manage total costs.
a. Provide information for planning, controlling, and evaluating the performance of production
operations
b. Provide accurate cost data about products for use in pricing and product mix decisions
c. Collect and process the information used to calculate the inventory and cost of goods sold
III. SUMMARY
Product Design
o Source documents: Master production schedule, production order, and
materials requisition
Planning and Scheduling
o Source documents: bill of materials and operations list
Productions Operation
o Actual Manufacturing of Products
Cost Accounting
o to provide information for planning, controlling, and evaluating the
performance of production operations
o to provide accurate cost data about products for use in pricing and
product mix decisions
o to collect and process the information used to calculate the inventory and
cost of goods sold values that appear in the company's financial
statements
Key Terms
Production cycle Computer-integrated manufacturing (CIM)
Bill of materials Request for proposal (RFP)
Operations list 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