CONVERSION

CYCLE
Two subsystems:
Production system
-The methods, procedure or
arrangement which includes
all functions required to
accumulate (gather) the
inputs, process or reprocess
the inputs, and deliver the
marketable output (goods).
Cost Accounting
System
-(also called product
costing system or costing system) 2
is a framework used by firms to
estimate the cost of their products
for profitability analysis, inventory
valuation and cost control.
Estimating the accurate cost of
products is critical for profitable
operations.
Conversion cycle in relation
to other cycles

3
PRODUCTION
METHODS
▹ CONTINOUS PROCESSING-creates a homogeneous
product through a continuous series of standard procedures.
Cement and petrochemicals are produced by this manufacturing
method. Typically, under this approach firms attempt to maintain
finished-goods inventory at levels needed to meet expected sales
demand. The sales forecast in conjunction with information on
current inventory levels triggers this process.

▹ MAKE-TO-ORDER PROCESSING-involves the

fabrication of discrete products in accordance with customer 5
specifications. This process is initiated by sales orders rather than
depleted inventory levels.

▹ BATCH PROCESSING-produces discrete groups

(batches) of product. Each item in the batch is similar and requires
the same raw materials and operations. To justify the cost of
setting up and retooling for each batch run, the number of items in
the batch tends to be large. This is the most common method of
production and is used to manufacture products such as
automobiles, household appliances, canned goods, automotive
tires, and textbooks. The discussion in this chapter is based on a
batch processing environment.
Documents in the Batch
Processing System

▹ Production schedule
▹ Bill of Materials (BOM) 6

▹ Route Sheet
▹ Work Order
▹ Move Ticket
▹ Materials Requisition
The production schedule is the formal plan and authorization
to begin production. This document describes the specific
products to be made, the quantities to be produced in each
batch, and the manufacturing timetable for starting and
completing production.

7
The bill of materials (BOM) specifies the types and quantities
of the raw material (RM) and subassemblies used in producing
a single unit of finished product. The RM requirements for an
entire batch are determined by multiplying the BOM by the
number of items in the batch.

8
A route sheet shows the production path that a particular
batch of product follows during manufacturing. It is similar
conceptually to a BOM. Whereas the BOM specifies material
requirements, the route sheet specifies the sequence of
operations (machining or assembly) and the standard time
allocated to each task.

9
The work order (or production order) draws from BOMs and
route sheets to specify the materials and production
(machining, assembly, and so on) for each batch. These,
together with move tickets (described next), initiate the
manufacturing process in the production departments.

10
A move ticket records work done in each work center
and authorizes the movement of the job or batch from
one work center to the next.

11
A materials requisition authorizes the storekeeper to release materials
(and subassemblies) to individuals or work centers in the production
process. This document usually specifies only standard quantities.
Materials needed in excess of standard amounts require separate
requisitions that may be identified explicitly as excess materials
requisitions. This allows for closer control over the production process by
highlighting excess material usage. In some cases, less than the
standard amount of material is used in production. When this happens,
the work centers return the unused materials to the storeroom
accompanied by a materials return ticket.

12
Batch Production Activities

1. Production Planning And Control

Materials and Operations Requirement
13
Product Scheduling
2. Work Centers and Storekeeping
3. Inventory Control
Production Planning &
Control

Risks: Controls:
▹ Uncalculated ▹ PPC authorizes
Production (surplus) production activity via 14
formal work order

▹ Production without ▹ PPC separated from

formal documents work centers. Actual
productions are
initiated upon receipts
of control documents
by work centers
Work centers and
Storekeeping

Risks: Controls:
▹ Improper ▹ Use of time cards and
job tickets, together
allocation of labor with supervision of
15

▹ Issuance of managers
excess materials ▹ Before actual
production takes place,
obtaining raw materials
from storekeeping in
exchange of Materials
Requisition is needed.
Inventory Control

Risks: Controls:
▹ Validity of RM ▹ Periodically updating of
inventory records;
and FG inventory periodical verification
16

records through physical count

by auditors
▹ Collusion
between ▹ Inventory control
maintains RM and FG
employees from inventory separated
record keeping to from Materials
asset inventory Storeroom and FG
warehouse.
CONTROLS IN
TRADITIONAL
ENVIRONMENT
▹ TRANSACTION AUTHORIZATION
Work order, move ticket, materials requisition

▹ SEGREGATION OF DUTIES
Inventory control separate from Raw Materials &
Finish Goods Inventory custody

▹ SUPERVISION 18

▹ ACCESS CONTROLS
▹ ACCOUNTING RECORDS
Cost sheets, job tickets, WIP records, and FG
inventory file

▹ INDEPENDENT VERIFICATION
Cost accounting function reconciles all costs
of production
 “
WORLD-CLASS COMPANY
 Maintains strategic agility
 Motivate and treat
employees like
appreciating assets
 Meets the needs of its
customers
 Philosophy of customer
satisfaction
 Philosophy of lean
manufacturing
19
Thank you!
LEAN
MANUFACTURING 21
Principles of Lean Manufacturing

 PULL PROCESSING-pulling products from consumer

end
 PERFECT QUALITY-to meet consumer’s demand

22
WASTE MINIMIZATION-eliminate non-value activities
 PRODUCTION FLEXIBILITY-to produce diversity of
products
 ESTABLISHED SUPPLIER RELATIONS-reliable
vendors
 TEAM ATTITUDE-attitude of all employees as a whole
TECHNIQUES AND TECHNOLOGY THAT
PROMOTES LEAN MANUFACTURING

▹ PHYSICAL REORGANIZATION OF THE PRODUCTION

FACILITIES
Reorganizing and/or restructuring of the manufacturing
23
process in order to improve its effectiveness and efficiency
▹ AUTOMATION OF THE MANUFACTURING PROCESS
The replacement of the human labour with autonomous or
semi-autonomous machinery.
Automation of a
Manufacturing Process

24
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White Black
Is the color of milk and Is the color of coal,
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colors of the visible absence of or
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Is the color of gold, Is the colour of the Is the color of blood,
butter and ripe clear sky and the and because of this it
lemons. In the deep sea. It is has historically been 26
spectrum of visible located between associated with
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Yellow Blue Red
Is the color of gold, Is the colour of the Is the color of blood,
butter and ripe clear sky and the and because of this it
lemons. In the deep sea. It is has historically been
spectrum of visible located between associated with
light, yellow is found violet and green on sacrifice, danger and 36
between green and the optical spectrum. courage.
orange.

Yellow Blue Red

Is the color of gold, Is the colour of the Is the color of blood,
butter and ripe clear sky and the and because of this it
lemons. In the deep sea. It is has historically been
spectrum of visible located between associated with
light, yellow is found violet and green on sacrifice, danger and
between green and the optical spectrum. courage.
orange.
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