Accounting information systems controls and process 2nd tunnwe weickgenannt chapter 11

SECOND EDITION

Chapter
11-1

Prepared
by CobybyHarmon
Prepared
Coby Harmon
University
of California,
Santa Barbara
University
of California,
Santa Barbara
Westmont
Westmont
CollegeCollege


Conversion Processes
and Controls

Chapter
11-2


Study
Study Objectives
Objectives
1.

Basic features of conversion processes

2.

The components of the logistics function

3.

Cost accounting reports generated by conversion processes

4.

Risks and controls in conversion processes

5.

IT systems of conversion processes

6.

Ethical issues related to conversion processes

7.

Corporate governance in conversion processes

Chapter
11-3

Real
Real World
World
Nissan Motor Company’s automobile plant near Jackson,
Mississippi, has cutting-edge technology and robotic assemblers.
“Assembly lines are powered by enormous robots; at one stop in the
line, a bay of over 25 robots each make 12 welds per second.
Suppliers are tied into the line by computers; parts actually arrive in
the order they’ll be used.”
The complex technology allows Nissan to handle four different
models in random order and to finish a vehicle in 13 hours. The plant
can produce 400,000 vehicles in a five-day period with two shifts
operating.

Chapter
11-4


Basic
Basic Features
Features of
of Conversion
Conversion Processes
Processes
Conversion processes involve activities related to the
transformation of resources into goods or services.
Resources include:

Chapter

11-5



Materials



Labor



Overhead



Various other expenses necessary to run the operating
facility

SO 1 Basic features of conversion processes


Basic
Basic Features
Features of
of Conversion
Conversion Processes
Processes
Major activities within this process include

Chapter
11-6



Operational planning,



Optimizing use of employees, property, and inventories,



Controlling production flows,



Ensuring product quality, and



Preparing related cost accounting and financial accounting
records.

SO 1 Basic features of conversion processes


Exhibit 11-1
Conversion Processes within
the Overall System

Basic
Basic Features
Features of
of
Conversion
Conversion
Processes
Processes

Chapter
11-7

SO 1 Basic features of conversion processes


Basic
Basic Features
Features of
of Conversion
Conversion Processes
Processes

Exhibit 11-2
Overview of the
Conversion Processes

Chapter
11-8

SO 1 Basic features of conversion processes


Basic
Basic Features
Features of
of Conversion
Conversion Processes
Processes
Concept Check
Manufacturing has changed in recent years as a result of
each of the following factors except:
a. globalization
b. technological advances
c. increased competition
d. lack of economic prosperity

Chapter
11-9

SO 1 Basic features of conversion processes


Components
Components of
of the
the Logistics
Logistics Function
Function
Logistics is the logical, systematic flow of resources

throughout the organization.
Three primary components:

Chapter
11-10



planning,



resource management, and



operations.

SO 2 The components of the logistics function


Components
Components of
of the
the Logistics
Logistics Function
Function

 bill of materials
 operations list

 Production orders
Exhibit 11-3
Components of the
Logistics Function

Chapter
11-11

 Production schedule

SO 2 The components of the logistics function


Components
Components of
of the
the Logistics
Logistics Function
Function

Terminology


Economic Order Quantities (EOQ)



Raw materials



Work-in-process



Finished goods



Inventory status report

Chapter
11-12

Exhibit 11-3
Components of the
Logistics Function

SO 2 The components of the logistics function


Components
Components of
of the
the Logistics
Logistics Function
Function

Operations may be performed by :
 Continuous processing of homogeneous products

 Batch processing
 Custom, made-to-order processing

Chapter
11-13

Exhibit 11-3
Components of the
Logistics Function

SO 2 The components of the logistics function


Components
Components of
of the
the Logistics
Logistics Function
Function
Exhibit 11-5
Production Process Map

See next slide for larger image.

Chapter
11-14

SO 2 The components of the logistics function

Components
Components of
of the
the Logistics
Logistics Function
Function

Exhibit 11-5
Production Process Map

Chapter
11-15

SO 2 The components of the logistics function


Components
Components of
of the
the Logistics
Logistics Function
Function

Exhibit 11-5
Production Process Map

Chapter
11-16

SO 2 The components of the logistics function

Components
Components of
of the
the Logistics
Logistics Function
Function
Concept Check
The term conversion processes is often used synonymously
with
a. operations.
b. production.
c. manufacturing.
d. all of the above.

Chapter
11-17

SO 2 The components of the logistics function


Components
Components of
of the
the Logistics
Logistics Function
Function
Concept Check
Which of the following activities is not part of the planning

component of the logistics function?
a. Research and development
b. Capital budgeting
c. Human resource management
d. Scheduling

Chapter
11-18

SO 2 The components of the logistics function


Components
Components of
of the
the Logistics
Logistics Function
Function
Concept Check
Which of the following terms relates to the control of
materials being held for future production?
a. Routing
b. Work-in-process
c. Stores
d. Warehousing

Chapter
11-19

SO 2 The components of the logistics function

Components
Components of
of the
the Logistics
Logistics Function
Function
Concept Check
When additional procedures are necessary to bring a
defective product up to its required specifications, this is
referred to as
a. rework.
b. scrap.
c. work-in-process.
d. variance reporting.
Chapter
11-20

SO 2 The components of the logistics function


Components
Components of
of the
the Logistics
Logistics Function
Function
Concept Check
A firm expects to sell 1000 units of its best-selling product in

the coming year. Ordering costs for this product are $100 per
order, and carrying costs are $2 per unit. Compute the
optimum order size, using the EOQ model.
a. 10 units
b. 224 units
c. 317 units
d. 448 units
Chapter
11-21

SO 2 The components of the logistics function


Cost
Cost Accounting
Accounting Reports
Reports Generated
Generated by
by
Conversion
Conversion Processes
Processes
Standard costs are expected costs based on projections
of a product’s required resources.
Perpetual inventory systems involve

Chapter
11-22



recording purchases as raw materials inventory,



recording all components of work-in-process for inventories
in various stages of production, and



recording total cost of sales for products completed and
sold.
SO 3 Cost accounting reports generated by conversion processes


Cost
Cost Accounting
Accounting Reports
Reports Generated
Generated by
by
Conversion
Conversion Processes
Processes
Periodic inventory systems involve


updating the inventory and



cost of sales accounts

only at the end of the period.

Variances represent the differences between actual costs
and the standard costs applied.

Chapter
11-23

SO 3 Cost accounting reports generated by conversion processes


Risks
Risks and
and Controls
Controls in
in Conversion
Conversion
Processes
Processes
Common procedures within the conversion process:
Authorization of transactions
►

Initiation of production orders

►

Issuance of materials into production

►

Transfer finished goods to warehouse or shipping
areas

Segregation of duties
Adequate records and documents
Chapter
11-24

SO 4 Risks and controls in conversion processes


Risks
Risks and
and Controls
Controls in
in Conversion
Conversion
Processes
Processes
Common procedures within the conversion process:
Security of assets and documents
Independent checks and reconciliation
►

Physical inventory count

►

Physical inventory reconciliation

Cost-benefit considerations

Chapter
11-25

SO 4 Risks and controls in conversion processes