copyright © 2015 pearson education, inc. the production cycle chapter 14 14-1

Copyright © 2015 Pearson Education, Inc.

The Production CycleChapter 14

14-1


Learning Objectives•Describe the major business activities and

related information processing operations performed in the production cycle.

• Identify major threats in the production cycle and evaluate the adequacy of various control procedures for dealing with those threats.

•Explain how a company’s cost accounting system can help it achieve its manufacturing goals.

•Discuss the key decisions that must be made in the production cycle and identify the information required to make those decisions.

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Production Cycle Process

•Product Design▫Source documents: bill of materials and

operations list•Planning and Scheduling

▫Source documents: Master production schedule, production order, and materials requisition

•Production Operations•Cost Accounting

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Production Cycle Process

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1. Product Design 2. Planning and Scheduling

Threats Controls

1. Poor product design resulting in excess costs

2. Over and under production

1 a. Analysis of costs arising from product design choices b. Analysis of warranty and repair costs2 a. Production planning systems b. Review and approve production orders and schedules c. Restrict access to orders and schedules

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3. Production OperationsThreats Controls

1. Inventory theft2. Fixed asset theft3. Poor performance4. Suboptimal investments

in fixed assets5. Loss of inventory or fixed

assets due to fire or disasters

6. Disruption of operations

1 a. Restrict physical access b. Document movement of inventory c. Segregation of custody duties from authorization and recording2 a. Restrict access to fixed assets b. Keep detailed records of fixed assets including disposals3 a. Performance reporting4 a. Solicit competitive bids5 a. Insurance and physical safeguards6 a. Backup and disaster recovery plans 14-6


4. Cost Accounting

Threats Controls

1. Inaccurate cost data2. Inappropriate allocation

of overhead costs3. Misleading reports

1 a. Source data automation b. Data processing integrity controls2 a. Time-driven activity-based costing3 a. Performance metrics

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Cost Accounting Systems

•Provide information for planning, controlling, and evaluating the performance of production operations

•Provide accurate cost data about products for use in pricing and product mix decisions

•Collect and process the information used to calculate the inventory and cost of goods sold values that appear in organization’s financials

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Key Terms

• Production cycle• Bill of materials• Operations list• Manufacturing resource

planning (MRP-II)• Lean manufacturing• Master production

schedule (MPS)• Production order• Materials requisition• Move ticket

• Computer-integrated manufacturing (CIM)

• Request for proposal (RFP)

• Job-order costing• Process costing• Job-time ticket• Manufacturing overhead• Activity-based costing• Cost driver• Throughput

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copyright © 2015 pearson education, inc. the production cycle chapter 14 14-1

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