Lecture 8

Production Methods

1) Continuous process creates a homogenous product through a continuous series of standard procedures 2) Make to order processing involves the fabrication of discrete products in accordance with customer specifications 3) Batch processing produces discrete groups (batches) of product. Each item in the batch is similar and requires the same raw materials and operations.

The need for specialized processing

1) Different procedures are needed for hourly employees, salaried employees, piece workers, and commissioned employees 2) Payroll happens at discrete times (weekly, bi weekly, monthly). This would overload a "normal system" 3) Writing checks requires special controls. Combining payroll and trade transactions can encourage payroll fraud

HRM Data Processing:

1) Labor costs distributed into WIP, overhead, and expense accounts 2) Online labor distribution summary file is created 3) An online payroll register is created from the attendance and employee file 4) The employee records file is updated 5) Payroll checks are prepared and signed. Sent to treasurer for review and reconciliation w/ payroll register 6) Disbursement check is prepared for the funds transfer. Copy of check is sent to various depts 7) At the end of processing, the system retrieves the labor distribution summary file and the disbursements voucher file and updates the general ledger file.

PHYSICAL Payroll System

1) Payroll authorization and hours worked enter personnel and production information 2) The payroll dept reconciles this info, calculates payroll, and distributes paychecks to employees 3) Cost acct receives info regarding the time spent on each job and posts to WIP accordingly 4) AP receives payroll summary and authorizes the cash disbursements dept to deposit a single check into an account from which paychecks will be drawn. 5) The general ledger dept reconciles summary information from cost acct. and AP

HRM Depts:

1) Personnel: makes changes to employee files like new employees, deletions of terminated employees, changes in dependents, etc 2) Cost accounting: Enters job cost data to create labor usage file 3) Approved time cards from the supervisor at the end of the week, the time keeping department creates the current attendance file

Steps to prepare payroll

1) Prepare a payroll register showing gross pay, deductions, overtime pay, and net pay 2) Enter the info into the employee payroll records 3) Prepares employee paychecks 4) Sends the paychecks to the distribute paycheck function 5) Files the time cards, personnel action form, and copy of the payroll register

Documents in Batch Processing

1) Production schedule is the formal plan and authorization to begin production. 2) Bill of materials (BOM) specifies the types and quantities of the raw material and subassemblies used in producing a single unit of finished product. 3) Route Sheet shows the production path that a batch follows during production 4) Work order draws from BOM's and route sheets to specify the materials and production for each batch 5) Move ticket records work done in each work center and authorized the movement of the job down the line 6) Materials requisition authorizes the storekeeper to release materials and subassemblies to work centers in the production process. This allows for closer control over the production process by highlighting excess material usage

Production planning and control

1) Specifying materials and operations requirements 2) Production scheduling

HRM vs simple automated systems

1) The various depts transmit transactions to data processing via terminals 2) Direct access files are used for data storage 3) May processes are now performed in real time

Audit trail for payroll

1) Time cards, job tickets, disbursement vouchers 2) Journal information, from the labor distribution summary and payroll register 3) Subsidiary ledger accounts 4) General ledger accts: payroll control, cash, and the payroll clearing account

Ways to discourage payroll fraud

1) To stop employees from submitting time cards for employees who no longer work at the firm, the personnel action form keeps employees records (additions, subtractions, changes) current. 2) Separate the time keeping duties from the personnel function. (Tampering with employees information, etc.)

Independent verification controls

1) Verification of time (Supervisor must verify accuracy and sign time sheets) 2) Paymaster (The use of an independent paymaster to distribute checks rather than the normal supervisor) 3) Accounts payable (The AP clerk verifies the accuracy of the payroll register before creating a disbursement voucher) 4) General ledger (The general ledger department provides verification of the overall process by reconciling the labor distribution summary and the payroll disbursement voucher)

Payroll Processing

A special case purchases system in which the organization purchases labor rather than raw materials or finished goods for resale

Asset Acquisition

Authorization and approval procedures over the transaction will depend on assets value. Dept. managers typically have authority to approve purchases under a set amount.

Fixed Asset Transactions

Because the transactions are unique, they often require specific management approval and explicit authorization procedures. Automated transactions happen for routine acquisitions of inventory. They treat inventory acquisition as an expense of the current period, while they capitalize fixed assets that yield benefits for multiple periods.

Asset Maintenance

Involves adjusting the fixed subsidiary account balances as the assets depreciate over time or with usage (excludes land)

Asset Disposal

It begins when the responsible manager issues a request to dispose of the asset. Like any other transaction, the disposal of an asset requires proper approval. They can sell, scrap, donate, or retire the asset in place

Types of time records

Job tickets: capture the time that individual workers spend on each production job. Time cards: capture the time the employee is at work

Side note

Payroll function processing handles both employee paychecks and employe payroll records. While this may seem contradictory to internal control objectives, AP reviews the work from payroll and approves the payments. Supervisors should observe the time keeping process and reconcile the time cards with actual attendance.

Human Resource Management (HMR)

Payroll processing often integrated with this. Has a wide personnel database (employee benefits, labor resource of planning, employee relations, employee skills, and personnel actions (Pay rates, deductions, etc))

Overview of four basic processes:

Plan and control production Perform production operations Maintain inventory control Perform cost accounting

Cash Disbursement

Prepares a single check for the entire amount of the payroll and deposits it in the payroll imprest account.

Accounts payable clerk

Reviews the payroll register for correctness and prepares copies of cash disbursement voucher for the amount of the payroll

Payroll systems

Run periodically and are well suited to batch processing

Production scheduling

Second activity of planning and control. Master schedule for production run coordinates the production of many different batches. Time, size, and specs from BOM's and route sheets affect the schedule

Conceptual Fixed Asses System

Specific objectives of the fixed asset system: 1) Process the acquisition of fixed assets as needed and in accordance with formal management approval and procedures 2) Maintain adequate accounting records of asset acquisition, cost, description, and physical location in the organization 3) Maintain accurate depreciation records 4) Provide mgmt. with info. to help plan for future fixed asset investments 5) Properly record the retirement and disposal of fixed assets.

Paycheck fraud

Submitting a time card for non existent employees. To prevent this, you could use a paymaster to distribute pay checks to employees.

Raw Material requirments

The RM requirement for a batch of any given product is the difference between what is needed and what is available in the RM inventory

Work centers and storekeeping

The actual production operations begin when workers obtain raw materials from STOREKEEPING in exchange for material requisitions. When the task is complete at a particular work center, the supervisor or other authorized person signs the move ticket, which authorizes the batch to proceed to the next work center. A copy of the ticket is sent back to production planning and control to update the open work order file.