The Production Business Process: 2013 Pearson Education, Inc. Publishing As Prentice Hall, AIS, 11/e, by Bodnar/Hopwood

The Production Business Process
Chapter 10
10 – 1
 2013 Pearson Education, Inc. Publishing as Prentice Hall, AIS, 11/e, by Bodnar/Hopwood
Learning Objective 1
Describe the information flows and

controls in the production business
process.
10 – 2
Production Planning and Control
10 – 3
10 – 4
10 – 5
 Basic production requirements are provided by the bill-of-
materials and the master operations list.
 Resources available for production are communicated to
the production planning function through inventory status
reports and factory availability reports.
 A production order serves as authorization for the
production departments to make products.
 Materials requisition is issued for each production order to
authorize the stores function.
 Labor operations are recorded on job time cards.
 Production status reports are sent periodically from the
production departments to the production planning
function. 10 – 6
Cost Accounting Controls
 Cost accounting systems focus on the
management of manufacturing inventories:
materials, work in process (WIP), and finished
goods.
 Job costing is a procedure in which costs are
distributed to particular jobs or production
orders.
 Process costing – costs are compiled in process
or department accounts by periods.
10 – 7
Inventory Control
 Provides such information as:
 Inventory use
 Inventory balances
 Minimum and maximum levels of stock
 Reorder point – the level of inventory at which
it is desirable to order or produce additional
items.
 Economic order quantity (EOQ)
10 – 8
Inventory Control
2RS
EOQ =
PI
Where:
EOQ = economic order quantity (units)
R = requirements for the item this period (units)
S = purchasing cost per order
P = unit cost
I = inventory carrying cost per period,
expressed as a percentage of the period
inventory value
10 – 9
Inventory Control
 Lead time is the time between placing an
order and the receipt of the goods.
 Inventory usage rate is the quantity of the
goods used over a period of time.
Reorder point =
lead time x average inventory usage rate
10 – 10
Lean Production
 Lean production is a production system in which
parts are produced only as they are required in
subsequent operations of a business process.
10 – 11
Describe the major features of a

property accounting business
process.
10 – 12
Property Accounting Applications
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 Concerns an organization’s fixed assets and
investments. Four objectives:
 Maintain adequate records.
 Provide for appropriate depreciation and/or
amortization.
 Provide for reevaluation for insurance and
replacement-cost purposes.
 Provide management with reports for planning
and control.
10 – 14
 Fixed-asset register – a systematic listing
of an organization’s fixed assets.
 Investment register – contains all relevant
information, such as certificate numbers
and the par value of securities, to facilitate
identification and control.
10 – 15
Identify and describe key

components of computer integrated
manufacturing (CIM) systems.
10 – 16
Quick-Response Manufacturing
Systems
10 – 17
The Physical Manufacturing
System
 Two subsystems directly support the
physical manufacturing system.
 Computer-Aided Design and Drafting
(CADD)
 Computer-Aided Manufacturing (CAM)
10 – 18
Computer-Aided Design and Drafting
(CADD)
Solids modeling
Finite element analysis
Automated drafting
10 – 19
Computer-Aided Manufacturing
(CAM)
Industrial robot
Statistical process control
Flexible manufacturing systems
(FMS)
10 – 20
The Manufacturing Resource Planning
(MRP II) System
The MRP II system comprises the
materials requirements planning
(MRP) system and the related
systems for sales, billing, and
purchasing.
10 – 21
The Manufacturing Resource Planning
(MRP)
10 – 22
Advanced Integration Technologies
 Automatic identification
 Radio Frequency Identification (RFID)
 Uniform Product Code (UPC)
 vendor-based coding
 European Article Number (EAN-13)
 Global Trade Item Number (GTIN)
 EDI – links vendor and customer
electronically
10 – 23
Depict the flow of processing

necessary to support Manufacturing
Resource Planning (MRP II) systems.
10 – 24
Production Planning
 Production planning involves the
determination of which products to produce
and the scheduling of production to make
optimal use of production resources.
 Demand for a product
 Production requirements
 Production resources available
10 – 25
Production Planning
10 – 26
Production Planning
10 – 27
Production Scheduling
10 – 28
Cost Accounting
10 – 29
Reporting
10 – 30
Describe why activity-based costing

is particularly relevant to CIM
systems.
10 – 31
Activity-Based Costing
 Traditional cost accounting techniques may be
inadequate in a CIM environment.
 CIM reduces direct labor and increases
overhead.
 Variable costs decrease and fixed costs increase.
 Activity-Based Costing (ABC) calculates
several overhead rates, one for each
manufacturing activity.
10 – 32
Activity-Based Costing
 Examples of activities:
 Machine centers
 Materials handling
 Inspection stations
 Robotics and manual assembly
 A single department may contain several
different activities.
 A cost driver is an element that influences the
total cost of an activity.
10 – 33
Major Processing Modules in
MRP II
10 – 34
ERP, ERP II, and EAS
 MRP and MRP II have given way to ERP,
ERP II, and EAS.
 These systems incorporate all the functionalities
of MRP and MRP II, in addition to other major
business processes (e.g., HR).
 EAS differs from ERP and ERP II in that EAS
involves a suite of applications that work
together to perform the same functions.
10 – 35
Implementing Lean Production in
an MRP II/CIM Environment
 Push vs. Pull
 As a manufacturer moves from a batch to a
JIT continuous-flow manufacturing
environment, less emphasis might be
placed on a complete MRP II system.
10 – 36
Special Internal Control
Considerations
 Transactions may be processed without human
intervention or approval.
 This eliminates conventional controls associated with
separation of duties in transactions.
 Extensive control and audit trails may be implemented
in quick-response manufacturing systems.
 These features may be included within the design and
development of the system.
 Systems development is critical in quick-response
manufacturing systems.
10 – 37
End of Chapter 10
10 – 38

The Production Business Process: 2013 Pearson Education, Inc. Publishing As Prentice Hall, AIS, 11/e, by Bodnar/Hopwood

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The Production Business Process

Describe the information flows and

Describe the major features of a

Identify and describe key

Depict the flow of processing

Describe why activity-based costing

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