chapter 11-1. chapter 11-2 accounting information systems, 1 st edition conversion processes and...

Chapter 11-1

Chapter 11-2 Accounting Information Systems, 1st Edition

Conversion Processes and Controls

Chapter 11-3

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

Study ObjectivesStudy ObjectivesStudy ObjectivesStudy Objectives

Chapter 11-4

Conversion processes - activities related to the transformation of resources into goods or services.

Resources include:

Materials

Labor

Overhead

Various other expenses necessary to run the operating facility

SO 1 Basic features of conversion processesSO 1 Basic features of conversion processes

Basic Features of Conversion Basic Features of Conversion ProcessesProcessesBasic Features of Conversion Basic Features of Conversion ProcessesProcesses

Chapter 11-5

Major activities within this process include

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 processesSO 1 Basic features of conversion processes


Chapter 11-6

Exhibit 11-1 Conversion Processes withinthe Overall System

Basic Features of Basic Features of Conversion Conversion ProcessesProcesses

Basic Features of Basic Features of Conversion Conversion ProcessesProcesses

SO 1 Basic features of conversion SO 1 Basic features of conversion processesprocesses

Chapter 11-7 SO 1 Basic features of conversion SO 1 Basic features of conversion

processesprocesses


Exhibit 11-2Overview of the Conversion Processes

Chapter 11-8

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

Quick ReviewQuick Review

SO 1 Basic features of conversion SO 1 Basic features of conversion processesprocesses


Chapter 11-9 SO 2 The components of the logistics functionSO 2 The components of the logistics function

Components of the Logistics Components of the Logistics FunctionFunctionComponents of the Logistics Components of the Logistics FunctionFunctionLogistics is the logical, systematic flow of resources throughout the organization.

Three primary components:

planning,

resource management, and

operations.


Components of the Logistics Components of the Logistics FunctionFunctionComponents of the Logistics Components of the Logistics FunctionFunction

Exhibit 11-3Components of the Logistics Function

bill of materials

operations list

Production orders

Production schedule



Exhibit 11-3Components of the Logistics Function

Terminology

Economic Order Quantities (EOQ)

Raw materials

Work-in-process

Finished goods

Inventory status report

Chapter 11-12


Operations may be performed by :

Continuous processing of homogeneous products

Batch processing

Custom, made-to-order processing Exhibit 11-3Components of the Logistics Function

SO 2 The components of the logistics functionSO 2 The components of the logistics function

Chapter 11-13



Exhibit 11-5Production Process Map

See next slide for larger image.

Chapter 11-14




Chapter 11-15




Chapter 11-16

The term conversion processes is often used synonymously with

a. operations.

b. production.

c. manufacturing.

d. all of the above.




Chapter 11-17

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

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

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

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 3 Cost accounting reports generated by conversion SO 3 Cost accounting reports generated by conversion

processesprocesses

Cost Accounting Reports Generated byCost Accounting Reports Generated byConversion ProcessesConversion ProcessesCost Accounting Reports Generated byCost Accounting Reports Generated byConversion ProcessesConversion Processes

Standard costs are expected costs based on projections of a product’s required resources.

Perpetual inventory systems involve

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.

Chapter 11-22 SO 3 Cost accounting reports generated by conversion SO 3 Cost accounting reports generated by conversion

processesprocesses

Cost Accounting Reports Generated byCost Accounting Reports Generated byConversion ProcessesConversion ProcessesCost Accounting Reports Generated byCost Accounting Reports Generated byConversion ProcessesConversion 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 4 Risks and controls in conversion processesSO 4 Risks and controls in conversion processes

Risks and Controls in Conversion Risks and Controls in Conversion ProcessesProcessesRisks and Controls in Conversion Risks and Controls in Conversion ProcessesProcessesCommon 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

Risks and Controls in Conversion Risks and Controls in Conversion ProcessesProcessesRisks and Controls in Conversion Risks and Controls in Conversion ProcessesProcessesCommon procedures within the conversion process:

Security of assets and documents

Independent checks and reconciliation

Physical inventory count

Physical inventory reconciliation

Cost-benefit considerations

SO 4 Risks and controls in conversion processesSO 4 Risks and controls in conversion processes

Chapter 11-25

Which of the following internal controls is typically associated with the maintenance of accurate inventory records?

a. Performing regular comparisons of perpetual records with recent costs of inventory items

b. Using a just-in-time system to keep inventory levels at a minimum

c. Performing a match of the purchase request, receiving report, and purchase order before payment is approved

d. Using physical inventory counts as a basis for adjusting the perpetual records


Risks and Controls in Conversion Risks and Controls in Conversion ProcessesProcessesRisks and Controls in Conversion Risks and Controls in Conversion ProcessesProcesses


Chapter 11-26

The goal of a physical inventory reconciliation is to

a. determine the quantity of inventory sold.

b. compare the physical count with the perpetual records.

c. compare the physical count with the periodic records.

d. determine the quantity of inventory in process.


Risks and Controls in Conversion Risks and Controls in Conversion ProcessesProcessesRisks and Controls in Conversion Risks and Controls in Conversion ProcessesProcesses


Chapter 11-27

IT Systems of Conversion ProcessesIT Systems of Conversion ProcessesIT Systems of Conversion ProcessesIT Systems of Conversion Processes

Computerized systems may provide the following

benefits:

Automatic computation of materials requirements

Systematic scheduling that allows for greater flexibility and increased efficiencies

Timely transfer of inventories due to the automatic notification features

Validation of data entries

Automatic updating of inventory status reports

Automatic preparation of financial accounting entries and cost accounting reports

SO 5 IT systems of conversion processesSO 5 IT systems of conversion processes

Chapter 11-28


Additional trends that enhance the conversion process:

Computer-aided design (CAD)

Computer-aided manufacturing (CAM)

Industrial robots

Materials resource planning (MRP)

Manufacturing resource planning (MRP-II)

Enterprise-wide resource planning (ERP)

Computer-integrated manufacturing systems (CIMs)

Just-in-time (JIT) production systemsSO 5 IT systems of conversion processesSO 5 IT systems of conversion processes

Chapter 11-29


Match IT systems on left with their definitions on the right:


a. A network including production equipment, computer terminals, and accounting systemsCAD

CAM

MRP

MRP-II

ERP

CIMs

JIT

b. Electronic workstation including advanced graphics and 3-D modeling of production processes

c. Automated scheduling of manufacturing resources, including scheduling, capacity, and forecasting functionsd. The minimization of inventory levels by the control of production so that products are produced on a tight schedule in time for their sale

e. A single software system that includes all manufacturing and related accounting applications

f. Automated scheduling of production orders and materials movement

g. Production automation, including use of computers and robotics

Chapter 11-30





CAM

MRP

MRP-II

ERP

CIMs

JIT






Chapter 11-31





CAM

MRP

MRP-II

ERP

CIMs

JIT






Chapter 11-32





CAM

MRP

MRP-II

ERP

CIMs

JIT






Chapter 11-33





CAM

MRP

MRP-II

ERP

CIMs

JIT






Chapter 11-34





CAM

MRP

MRP-II

ERP

CIMs

JIT






Chapter 11-35





CAM

MRP

MRP-II

ERP

CIMs

JIT






Chapter 11-36




Chapter 11-37

Which of the following is not considered a benefit of using computerized conversion systems?

a. Automatic computation of materials requirements

b. Increased sales and cost of sales

c. Increased efficiency and flexibility

d. Early error detection and increased accuracy




Chapter 11-38

Which of the following represents a method of managing inventory designed to minimize a company’s investment in inventories by scheduling materials to arrive at the time they are needed for production?

a. The economic order quantity (EOQ)

b. Material resource planning (MRP)

c. First-in, first-out (FIFO)

d. Just-in-time (JIT)




Chapter 11-39

For which of the following computerized conversion systems is Wal-Mart well known?

a. CAD/CAM

b. MRP-II

c. CIMs

d. JIT




Chapter 11-40

Ethical Issues Related to Conversion Ethical Issues Related to Conversion ProcessesProcessesEthical Issues Related to Conversion Ethical Issues Related to Conversion ProcessesProcesses

Earnings management is the act of misstating financial information in order to improve financial statement results.

Absorption costing involves the inclusion of both variable and fixed costs in the determination of unit costs for ending inventories and cost of goods sold.

SO 6 Ethical issues related to conversion processesSO 6 Ethical issues related to conversion processes

Chapter 11-41

Corporate Governance in Conversion Corporate Governance in Conversion ProcessesProcessesCorporate Governance in Conversion Corporate Governance in Conversion ProcessesProcesses

The internal controls and ethical tone and procedures within the conversion process are also part of the corporate governance structure.

Establishing and maintaining reliable inventory management processes, internal controls, and ethical practices help ensure proper financial stewardship.

SO 7 Corporate governance in conversion processesSO 7 Corporate governance in conversion processes

Chapter 11-42

Copyright © 2008 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.

CopyrightCopyrightCopyrightCopyright

chapter 11-1. chapter 11-2 accounting information systems, 1 st edition conversion processes and...

Documents