kap 16 production cycle
threat to planing and scheduling
over- or underproduction. - Overproduction happens -> a supply of goods in excess of short-run demands -> creating potential cash flow problems cusresources are tied up in inventory Also increases the risk of carrying inventory that becomes obsolete - underproduction happen -> lost sales and customer dissatisfaction because of lack of availability of desired items.
what does the accountants do regarding overhead costs, what is their role
play a key role in controlling overhead costs carefully assessing how changes in product mix affect total manufacturing overhead. not just collecting data , identify the underlying factors that drive the changes in total costs with this information one can be used to adjust production plans and factory layout to maximize efficiency and profitability to do this effectively requires that the cost accounting system be redesigned to collect and report costs in a manner consistent with the production planning techniques of the company.
what the main threat to product design process, what can it cause and what are the controls
poor product design - too many unique components when producing similar products -> cost (purchasing and maintaining raw materials inventories) increases -> excessive complexity in changing from the production of one product to another -> inefficient production solution: 1. accountants join product design activity because majority of product cost are determined at this stage Accountants can analyze alternative components/ changes to the production process to affect costs 2 accountants use information from the revenue cycle about repair/warranty costs associated with existing products to identify the primary causes of product failure and suggest ways to redesign products to improve quality.
Manufacturing Resource Planning (MRP II)
An extension of materials resource planning seeks to balance existing production capacity and raw materials needs to meet forecasted sales demands. Also referred to as push manufacturing because goods are produced in expectation of customer demand.
Two common methods of production planning
Manufacturing resource planning and lean manufacturing
what are two important benefits of abc costing system
More accurate cost data result in better product mix and pricing decisions, and more detailed cost data improve management's ability to control and manage total costs.
how can over/under-production be mitigated
Production planning systems can reduce the risk of over- and underproduction. Improvement requires - accurate and current sales forecasts - data about inventory stocks, - information that the revenue and expenditure cycle systems can provide - Production performance info , especially trends in total time to manufacture each product, (regularly collected -> used to review/adjust the mps. - Proper approval and authorization of production orders - unauthorized production orders can be reduced by restricting access to the production scheduling program
what is required to reach the objective
(first objective): cost accounting system must be designed to collect real-time data about the performance of production activities so that management can make timely decisions. smart sensors, part of the Industrial Internet of Things, increases both the quantity and quality of such data (other two objectives): the system must 1. classify costs by various categories -> 2. assign those costs to specific products and organizational units. This requires careful coding of cost data during collection because often the same costs may be allocated in multiple ways, for several different purposes
must accountants be well versed with CIM
Accountants need not be experts on every facet of CIM, but they must understand how it affects both operations and cost accounting.
how have these problems from lean manufacturing switch-over been adressed
- supplementing traditional financial reports based on Generally Accepted Accounting Principles (GAAP) with additional reports based on lean-accounting principles. - reporting overhead costs as a separate item, rather than including them in the calcula- tion of the cost of goods sold. - changing the structure of performance reports, accountants should also develop/refine new measures designed to focus on issues important to production cycle managers
General issues throughout the entire production cycle? solution
1. Inaccurate or invalid master data -Data processing integrity controls/Restriction of access to master data/Review of all changes to master data 2. Unauthorized disclosure of sensitive information - Access controls and Encryption 3. Loss or destruction of data - Backup and disaster recovery procedures
The four basic activities in the production cycle
1. Product Design 2. Planning and Scheduling 3. Production Operations 4. Cost Accounting
what happens after suppliers answer back
1. The capital investments committee should review the responses and select the best bid. 2. Once a supplier has been selected, 3. the acquisition of the asset may be handled through the regular expenditure cycle process A formal purchase order is prepared -> receipt of the asset is formally documented using a receiving report, -> a disbursement voucher is used to authorize payment to the supplier. The same set of processing controls and edit checks employed for other purchases also should be used for fixed-asset acquisitions
other than MPS what other document is created during the planning and scheduling process of production
1.production order, A document authorizing the manufacture of a specified quantity of a particular product. - lists the operations needed to be performed - the quantity to be produced - the location where the finished product should be delivered. - collects data about each of those activities 2.materials requisition Authorizes the removal of the necessary quantity of raw materials from the storeroom. 3. materials requisition Documents that identify the internal transfer of parts, the location to which they are transferred, and the time of the transfer. Subsequent transfers of raw mate rials throughout the factory are documented on move ticket
some other threats and their respective controls
8. Poor performance 9. Suboptimal investment (over/under-investing) in fixed assets -> excess cost/impair productivity -> reduce profitability 10 Loss of inventory or fixed assets due to fire or other disasters 11. Disruption of operations 8.1 training 8.2 Performance reports 9.1 Proper approval of fixed-asset acquisitions, including the use of requests for proposals to solicit multiple competitive bids 10.1 Physical safeguards (e.g., fire sprinklers) 10.2 Insurance 11.1 Backup and disaster recovery plans 11.2 Network and logical access controls
Activity Based Costing, how does it affect costing such as job-order and process costing
A cost system designed to trace costs to the activities that create them. can refine and improve cost allocations under both job-order and process cost systems by tracing costs to the activities that create them, -> only subsequently allocating those costs to products or departments.
Bill of Materials
A document that shows the quantity of each type of direct material required to make a product.
operations list
A document that specifies -the steps to follow in making a product, - which equipment to use, - how long each step should take.
computer-integrated manufacturing (CIM)
A manufacturing approach in which much of the manufacturing process is performed/monitored by computerized equipment, in part through the use of robotics and real-time data collection of manufacturing activities.
Request for Proposal (RFP)
A request by an organization/department -> specifies the desired properties of the asset -> sent to each pro- spective supplier. always involved in a orders for machinery and equipment tillskilland från små köp
who recommends large capital expenditures/big purchases and who reviews it so it was not a big waste of money
A supervisor or manager (who provides details about expected cash flows/other costs and benefits of the proposed expenditure) should first recommend large capital expenditures. recommendations like so should be reviewed by a senior executive/executive committee and the various projects ranked by priority.
Exactly how do CAD help with efficiency and effectiveness
CAD: enables manufacturers to design/test virtual 3-D models of products,-> eliminating costs from creating/destroying physical prototypes. Facilitates collaboration by design teams dispersed around the globe / eliminates the costs associated with exchanging static copies of product designs.
how does corporate strategy determine cost
Corporate strategy results in decisions about what goods and services to produce. Activities must be performed to produce these goods and services, which in turn incur costs. Thus, corporate strategy determines costs
how does ERP improve usage of activity based costing
ERP systems make it easier to implement activity-based costing because they provide detailed information about the steps required to process a transaction observe and calculate the average time (and cost) it takes to retrieve one component from inventory time measure can then be multiplied by the number of line items in a production order (automatically recorded by the ERP system) to calculate the materials requisition costs for each different finished product.
lean manufacturing
Extends the principles of just-in-time inventory systems to the entire production process to minimize or eliminate inventories of raw materials, work in process, and finished goods. Lean manufacturing is often referred to as pull manufacturing because goods are produced in response to customer demand.
how does abc help with managerial decision
Finally, activity-based cost data improve managerial decision making by providing infor- mation about the costs associated with specific activities,
is using PLM easy and
For PLM to truly improve the product design process, it requires careful supervision by senior management.
example how CIM can significantly affect the production process
For example, 3-D printing reduces both the time and cost to make products. 3-D printing also makes it possible to build products that could not be made using traditional manufacturing processes.
how does digital manufacturing software help with efficiency and effectiveness
It allows companies to determine labor machine, and process requirements to optimally produce items in different facilities across the globe in order to minimize costs.
how does production data management software help with efficiency and effectiveness
It provides easy access to detailed engineering specifications and other product data to facilitate product redesign, modification, and post-sale maintenance.
we know what MPS is but what is it used for
Its used to develop a detailed timetable -> specifies daily production Also to determine raw materials purchases.
what type of manufacturing companies are suitable for receptive method
MRP-II: If demand for a company's product is predictable and the product has a long life cycle lean manufacturing: more appropriate if a company's products are characterized by short life cycles and unpredictable demand.
What one operational effect of cim and how does this further effect the company
One operational effect of CIM is a shift from mass production to custom-order manufacturing however, this requires a redesign of inventory management systems and workflows to facilitate quick changes in production.
so does it mean companies that uses lean manufacturing doesn't plan their production
Theoretically, lean manufacturing systems produce only in response to customer orders. In practice, most lean manufacturing systems develop short-run production plans so that it can provide a stable schedule to its sup- pliers
Number 2
Using a greater number of cost pools to accumulate indirect costs (manufacturing over- head). Whereas most traditional cost systems lump all overhead costs together,
What are the three important ways activity-based costing systems differ from conventional cost accounting systems in three important ways: number 1
Using advances in IT to trace a larger proportion of overhead costs to products. Ex: RFID technology/bar-coding facilitate tracking the exact quantities of miscellaneous parts used in each product or process stage. When implementing activity- based costing systems, accountants observe production operations and interview factory workers and supervisors to obtain a better understanding of how manufacturing activities affect costs.
Process Costing
a cost system that assigns costs to each process, or work center, in the production cycle, -> then calculates the average cost for all units produced ex: breweries accumulate the costs associated with the various processes (e.g., mashing, primary fermentation, filtering, and bottling) in producing a batch of a particular kind of beer then compute the average total unit cost for that product.
Job Order Costing
a costing system used in situations where many different products, jobs, or services are produced each period assigns costs to specific production batches/jobs ex. construction comp use this for each house built
Is ERP useful in production planning/scheduling
accurate production planning requires integrating information about customer orders (from the revenue cycle) with information about purchases from suppliers (from the expenditure cycle), along with information about labor availability (from the HR/payroll cycle).
does the smaller expenditures go through the same process
as mention before, the size alters the process/control procedures Smaller capital expenditures usually can be purchased directly out of departmental budgets, which avoids a formal approval process.
how does the abc system avoid the problems of traditional costing
avoid these problems because overhead is divided into three categories and applied using cost drivers that are causally related to produc- tion. Therefore, product cost data are more accurate. accurate data -> better decision regarding pricing and accepting sale contracts
Traditional cost systems tend to apply too much overhead to some prod- ucts and too little to others, why? and what problems does it lead to
because too few cost pools are used 1. companies accept sales contracts for some products at prices below their true cost of production. Consequently, although sales increase, profits decline 2. companies may overprice other products, thereby inviting new competitors to enter the market
What are the outputs/document that the product design activity creates
bill of materials & operations list
what's their similarities and differences
both MRP-II and lean manufacturing systems plan production in advance. They differ, however, in the length of the planning horizon. MRP-II systems may develop production plans for up to 12 months in advance, whereas lean manufacturing systems use much shorter planning horizons.
what systems does the production cycle system integrate from
both operation and financial data from many sources ex bill of materials - product components operations list - how to manufacture master production schedule Inventory production orders work in process The engineering dep accesses both files to develop product specifications a/design similar products. It also accesses the general ledger/inventory files for information needed to calculate the costs of alternative product designs.
why is allocating overhead on direct labor problematic
can distort costs across products. factory automation increase -> direct labor used in production decreases -> the amount of overhead charged per unit of labor increases . As a result, small differences in the amount of labor used to produce two products can result in significant differences in product costs.
how does the system help with planning (step by step )
checks inventory on hand to determine how much needs to be produced to fill the new order -> calculates labor needs -> determines if they need to schedule overtime or hire temporary help in order to meet the promised fill date + Info the bill of materials is used to determine what components, -< if any, need to be ordered -> purchase orders are sent to suppliers via EDI -> The MPS is then adjusted to include the new order
is MPS a simple schedule for big companies
complexity increases with the number of factories large manufacturing companies -> coordinate production at many different plants in different countries, they build diff things ex. components and finished products
what is the final step in production cycle and what are the objectives
cost accounting (1) to provide information for planning, controlling, and evaluating the performance of production operations; (2) to provide accurate cost data about products for use in pricing and product mix decisions; (3) to collect and process the information used to calculate the inventory and cost of goods sold values that appear in the company's financial statements.
number 3
cost driver: Attempting to rationalize the allocation of overhead to products by identifying cost drivers. A cost driver is anything that has a cause-and-effect relationship on costs
how was it done before and why was it bad?
data was collected by wiring the factory so that each piece of equipment was linked to the computer system This limited the ability to quickly/easily redesign the layout of the shop floor to improve production efficiency. -> many manufacturing companies are replacing such wired connections with wire-less technology.
is the process/ control procedures of acquiring fixed assets always the same
depending on the size of the fixed-asset transactions it can lead to some modifications of the processes used to acquire inventory and miscellaneous supplies
why does modern approaches to production (lean) lead to short term decline in profitability
diff between modern and traditional is the reduction in inventory levels of finished goods -> production is scheduled in response to customer demand instead of projections based on prior years Traditional financial accounting treats inventory as an asset. -> costs of producing inventory are not recognized until the products are sold lean manufacturing switch-over -> reduces existing inventory levels, -> osts incurred in prior periods to create that inventory are now ex- pensed + almost all labor and overhead costs are expensed in the current period (cus lean minimize creation of additional inventory), instead of being allocated to inventory -> treated as an asset and deferred to future periods -> these two together results in a marked increase in expenses in the year of transitioning to lean accounting
how is the production cycle connected to other cycles
from revenue cycle: info (customer orders and sales forecasts) used to plan production and inventory levels To rev cycle: finished goods from expediture cycle: info about raw material acquisitions and about other expenditures included in manufacturing overhead To expenditure cycle: Purchase requisition; need for raw material from HR: data about labor cost /avaiblity to HR: labor needs To generel leger/reporting system: Cosy of goods
how can abc system fix the market system
if more accurate cost data were available, compa- nies would find that they could cut prices to keep competitors out of the market and still make a profit on each sale.
direct labor cost data collection
in the past: job-time ticket, collect data about labor activity -> recorded the amount of time a worker spent on each specific job task now: enter this data (amount of time) using online terminals at each factory workstation -> badge reader or bar-code scanner when they start and finish any task The time savings associated with using bar-coding to automate data collection can be significant.
what does "explode" the bill of materials
it is what needs to be done in order to determine the immediate raw materials requirements/ needs for meeting the production goals listed in the MPS
how is data collected about machinery/equipment use
its collected at each step in the production process, often in conjunction with data about labor costs. Ex:, when workers record their activities at a particular workstation, the system can also record information identifying the machinery and equipment used and the duration of such use.
name manufacturing cost that are had to trace to specific jobs/procceses
manufacturing overhead: ex. costs of water, power, and other utilities; miscellaneous supplies; rent, insurance, and property taxes for the factory plant; and the salaries of factory supervisors.
how do you restrict physical access to inventory and how do you reduce the risk of theft , solution 1
materials requisitions should be used to authorize the release of raw materials to production. Both the inventory control clerk and the production employee receiving the raw materials should sign the requisition to acknowledge the release of the goods to production. Requests for additional materials in excess of the amounts specified in the bill of materials should be documented and authorized by supervisory personnel. The return of any materials not used in production also should be documented. Wherever feasible, RFID tags or bar codes should be used to automate the tracking of inventory - maintain accurate inventory record
what is PLM and what components is it made up of
product life-cycle management (PLM) is a software -> improve the efficiency and effectiveness of the product design process. computer-aided design (CAD): software to design new products, digital manufacturing software: simulates how those products will be manufactured product data management software: stores all the data associated with products.
are there production plans easily changed in the MPS
production plans for many products must be frozen a few weeks in advance to provide sufficient time to procure the nec- essary raw materials, supplies, and labor resources. long-range part of the MPS may be modified in response to changes in market conditions,
how are the raw material requirements met
requirements are compared with current inventory levels to see if they have it all If additional materials are needed -> purchase requisitions are created -> sent to the purchasing department to initiate the acquisition process.
Master Production Schedule (MPS)
specifies how much of each product is to be produced during the planning period and when that production should occur Info about customer orders, sales forecasts, and inventory levels of finished goods is used to determine production levels - MPS; all the smashed into one
how can bar-coding/RFID be used in production cycle; planning and scheduling
the documents used in the production cycle track the movement and usage of raw materials bar-coding and RFID tags provides opportunities to im- prove the efficiency and accuracy of these materials handling activities by eliminating the need for manual entry of data Unlike barcoding -> RFID facilitates locating specific inventory -> the scanning devices are not limited to reading only those items directly in line-of-sight -> useful for large warehouses (where items get moved around to make room for new shipments )
what are these particularly important issues
the level of usable output pro- duced per unit of time and measures of quality control.
why is it important for companies to coordinate production activities when factories are in diff location
the production information system must coordinate these diff production activities to minimize bottlenecks and the buildup of partially completed inventories.
production cycle
the recurring set of business activities and related data processing operations associated with the manufacture of products
what are the major concerns in the production operations
theft of inventory and assets solutions: 1 Physical access restrictions 2 Documentation of all inventory movement 3 Segregation of duties—custody of assets from recording and authorization of removal 4 Restriction of access to inventory master data 5 Periodic physical counts of inventory and reconciliation of those counts to recorded quantities- discrepancies between physical counts and recorded amount -> investigation 1 Physical inventory of all fixed assets - rfid tag can monitor the location 2 Restriction of physical access to fixed assets 3 Maintaining detailed records of fixed assets, including disposal (since manufacturing machines are often replaced )
besides easily changing the layout, what does wireless technology help with
they can use 3-D simulation software to evaluate the effects of modifying shop-floor layout and workflow and to easily and quickly implement beneficial changes -> then change the layout for improved efficiency
how was the traditional cost system, what is negative about it
used volume driven bases ex direct labour/machine hours to apply overhead to products not all overhead cost vary directly with production volume (ex set up, vary with number of batches and not number of units) so allocating these types of overhead costs to products based on output-volume overstates the costs of products manufactured in large quantities. + understates the costs of products manufactured in small batches.
what is so special about the third step in production cycle; the production operations
varies greatly across companies, they differ according to the type of product being manufactured and the degree of automation used in the production process.
how does implementation of CIM effect product cost
when implementing CIM to automate the production process -> a larger proportion of product costs relate to the machinery and equipment used to make that product.
how is raw material data collected
when issuing material requirements -> triggers a debit to work in process for the raw materials sent to production additional materials are needed? -> another debit is made to work in process work in process is credited for any materials not used and returned to inventory. ------ Many raw materials can be tracked by bar codes and RFID tags. data about some types of inventory, such as liquids and gases, must still be manually recorded.
can you attach sensors to the equipment?, what would that do
yes, it makes it easier to ensure that preventive maintenance is done, thereby avoiding costs and delays due to breakdowns.
activity- based costing systems distinguish three separate categories of overhead:
●●Batch-related overhead: Ex. setup costs, inspections, and materials handling. ABC systems accumulate these costs for a batch and then allocate them to the units produced in that batch. Thus, products produced in large quantities have lower batch-related overhead costs per unit than products produced in small quantities (cus the divider/nämnaren is larger ) ●●Product-related overhead: These costs are related to the diversity of the company's product line. Ex. research/development, expediting, shipping, receiving, environmental regulations, and purchasing. ABC systems try to link these costs to specific products when possible. ●● Companywide overhead: This category includes such costs as rent or property taxes. These costs apply to all products. Thus, activity-based cost systems typically allocate them using departmental or plant rates.
