Accounting Information Systems: Essential Concepts and Applications Fourth Edition by Wilkinson, Cerullo, Raval, and Wong-On-Wing Module 3: The Conversion Cycle Slides Authored by Somnath Bhattacharya, Ph.D. Florida Atlantic University

Objectives of the Conversion Cycle - I zThe major purpose of the Conversion Cycle is to transform raw materials into finished goods zSpecifically, the objective is to ensure that: y1) Adequate raw materials and other resources are available for production, while the investment in such resources is minimized y2) 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 y3) WIP inventories are transformed into finished goods, which are then either warehoused or shipped on schedule

Objectives of the Conversion Cycle - II y4) Establish levels of product quality and after-sales service are attained y5) Costs for each order or process are accumulated fully and accurately

A Partial Organization Chart of a Logistics Function Figure M3-1

Forms of Data Input zCustomer order zBill of materials zOperations list/Routing slip zProduction schedule zProduction order zMaterials issue slip/Materials requisition zLabor job-time ticket zMove ticket/traveler zInspection report(s)

Computerized Data Entry zData 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. zPreformatted documents are automatically generated using application software and on- line data bases. zElectronic copies of the documents are maintained in on-line files, and hard-copy forms are printed only as needed and requested.

Data Processing zThe conversion cycle encompasses three major processing steps: yProduction planning yProduction operations yAccounting for production costs

Advantages of Computer Integrated Manufacturing Systems - I z1) 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 z2) Production orders are scheduled to accommodate the manufacturing capacity z3) Data are validated upon online entry, so that errors are detected more quickly and reprocessing delays due to undetected errors are reduced

Advantages of Computer Integrated Manufacturing Systems - II z4) Inventory and production order records are updated in a timely manner from materials requisitions, labor-time entries, and move tickets z5) Accounting-related processing is simplified, since transactions are posted without sorting to online files z6) Control reports such as cost variance analyses are prepared for managers

A Configuration for CIM, Including Associated Accounting Modules Logistics data base Accounting data base Cost Accounting Inventory Control Product Costing Automated Handling Warehousing Manufacturing CAM FMS Robotics Production Planning MRP JIT Engineering CAD Figure M3-17

Benefits of CIM Systems - I zGreater flexibility in meeting the changing needs of customers zSavings in the material inventory investment zIncreased quality in products zOptimal scheduling of production, with dynamic adjustments as conditions change or new orders are received

zShorter production cycle times zImproved productivity of employees and hence reduced labor costs zContinuous monitoring of production operations, with immediate feedback of control problems as they arise Benefits of CIM Systems - II

zSavings in paperwork costs, since most interactions are performed via computer and records are stored electronically zBetter utilization of all production facilities zGreater accessibility of information, including the ability to provide ad hoc reports for planning and control Benefits of CIM Systems - III

Measures Relating to the Product Conversion Cycle - I Figure M3-18

Figure M3-18 Continued Measures Relating to the Product Conversion Cycle - II

Figure M3-18 Continued Measures Relating to the Product Conversion Cycle - III

Figure M3-18 Continued Measures Relating to the Product Conversion Cycle - IV

Scheduled Managerial Reports zEmployee productivity reports that compare the output of the operations work center employees against standard levels of production zWork center performance reports that reflect the efficiency of each work center zOpen production order status reports that show which orders are behind schedule and by how much zEquipment utilization reports that show the percentage of downtime for each piece of factory equipment zWaste reports that show the percentages of scrap, rework, and rejects for the production orders currently in process

Data Management: File Oriented Approach zMaster Files yRaw materials yWIP yFinished goods zTransaction Files yProduction order file yMaterials issues file yOperations/Routing file

An Entity-Relationship Diagram of the Product Conversion Cycle Production Planner Dispatch Production Order Work Center Employees Assign to Production order/materials Raw Materials Production Order/Operations Undertake to Perform Operations Used in Establish WIP Inventory Accumulate Costs Cost Accountant Complete Production Finished Goods Inventory 1 1 m m 1 n 1 n n n n n 1 1 m Figure M3-22

Risk Exposures Within the Product Conversion Cycle - I Figure M3-24

Figure M3-24 Continued Risk Exposures Within the Product Conversion Cycle - II

Figure M3-24 Continued Risk Exposures Within the Product Conversion Cycle - III

Control Objectives zTo ensure that: yAll production orders are properly authorized and scheduled yAll 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 yAll movements of production orders through the production process are reflected by acknowledgements at the various work centers yAll finished goods are valued properly yAll inventories are adequately safeguarded

General Controls zOrganizational zDocumentation zAsset Accountability zManagement Practices zAuthorization zAccess

Application Controls zInput Controls zProcessing Controls zOutput Controls

Web Security Procedures zAuthentication zAuthorization zAccountability zData Transmission zDisaster Contingency and Recovery Plan

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