1. Chapter 9 The Production Business Process

2. Presentation Outline I.Files and Reports in a Production System II.Production Control Application System III.Property Accounting Applications IV.Quick-Response Manufacturing Systems

3. I. Files and Reports in a Production System A.Production Order B.Bill of Materials C.Master Operations List D.Materials Requisitions E.Job Time Cards F.Resource Availability Reports G.Production Status Reports

4. A. Production Order Production control issues production orders to authorize production departments to make certain products. We are ready to begin this order.

5. B. Bill of Materials A bill of materials is a listing of the ingredients that go into making a product. It lists of all the required parts and their descriptions. What materials do we need to make this product?

6. C. Master Operations List A master operations list specifies the sequencing of all labor and/or machine operations that are necessary to produce a product.

7. D. Materials Requisitions Production control prepares materials requisitions to authorize the release of raw materials from inventory for use in production.

8. E. Job Time Cards Job time cards are used to document the amount of labor time that is spent on each production order or job.

9. F. Resource Availability Reports  Inventory status reports detail the material resources available in inventory for production.  Factor availability reports communicate the availability of labor and machine resources for production. We have the materials, but may have to schedule some overtime for this job.

10. G. Production Status Reports Production status reports detail the work completed on individual production orders as they move through production. Open production orders are monitored and departmental production schedules are revised as necessary.

11. II. Production Control Application System A.The Role of Production Control B.Accounting for the Factors of Production C.Completion of the Production Order D.Inventory Control E.Just-In-Time Production

12. A. The Role of Production Control 1 Production Order 3 2 Production Departments Production Control Inventory Control Cost Accounting General Ledger 1 Production Order 2 Production Order N Inventory Status Report Finished Goods Raw Materials Inventory Status Report Factor Availability Report Factor Availability Report 2 1 Production Schedule D 1 Production Schedule

13. B. Accounting for the Factors of Production Production Departments Production Control Inventory Control Cost Accounting General Ledger 3 2 1 Materials Requisition N 2 1 Materials Requisition 1 Materials Requisition N Post to WIP Records Journal Voucher Journal Voucher Materials Placed in Production Production Status Production Status Job Time Cards Post to WIP Records Journal Voucher Journal Voucher Conversion Costs

14. C. Completion of the Production Order 3 2 Production Departments Production Control Inventory Control Cost Accounting General Ledger 1 Production Order 1 Production Order 2 Production Order N Completed 2 Production Order Post to Inventory Records Completed 2 Production Order Summarize Production Journal Voucher Journal Voucher Cost of Goods Manufactured Completed Production Cost Report To Management

15. D. Inventory Control 2RS PI EOQ = where EOQ = economic order quantity (units) R = requirements for the item this period (units) S = purchasing cost per order P = unit cost I = inventory carrying cost per unit expressed as a percentage of the period inventory value The EOQ must balance the total carrying cost against the total ordering cost. Once the EOQ is determined, the reorder point must be decided: Reorder point = lead time x average inventory usage rate

16. E. Just-In-Time Production  Just-in-time (JIT) production describes a production system in which parts are only produced as required in subsequent operations.  JIT systems differ from conventional production systems in that inventories of work-in-process, raw materials, and finished goods are minimized or totally eliminated.

17. III. Property Accounting Applications Fixed Assets  Maintain adequate records that identify assets with description cost, and physical location.  Provide for appropriate depreciation and/or amortization calculations for book and tax purposes.  Provide for reevaluation for insurance and replacement- cost purposes.  Provide management with reports for planning and controlling the individual asset items. Investments A common control practice with respect to the physical handling of investment securities is to require two people to be present when the firm’s safe deposit box or other depository is entered.

18. IV. Quick-Response Manufacturing Systems A.Defining Quick-Response Manufacturing Systems B.The Physical Manufacturing System C.The Manufacturing Resource Planning (MRP) System D.MRP II versus MRP E.Advanced Integration Technologies F.Internal Control Considerations G.Activity-Based Costing

19. Quick-Response Manufacturing System A. Defining Quick-Response Manufacturing Systems A computer integrated manufacturing CIM system integrates the physical manufacturing system and the manufacturing resource planning (MRP II) systems. A quick-response manufacturing system is a CIM system that is integrated with advanced integration technologies. Physical Manufacturing System Physical Manufacturing System CADDCAM Manufacturing Resource Planning (MRP II) Manufacturing Resource Planning (MRP II) MRP Computer Integrated Manufacturing (CIM) System Electronic Data Interchange (EDI) Automatic Identifcation Advanced Integration Technologies

20. B. The Physical Manufacturing System 1.Computer-Aided Design and Drafting (CADD) 2.Computer-Aided Manufacturing (CAM)

21. 1. Computer-Aided Design and Drafting (CADD)  CADD uses computer software to perform engineering functions.  Designers can store product designs on computer. These designs can be recalled and manipulated as needed.  Solids modeling is the mathematical representation of a part as a solid object in computer memory.  Finite element analysis is a mathematical model used to determine mechanical characteristics, such as stresses of structures under load.

22. 2. Computer-Aided Manufacturing (CAM)  CAM systems are useful in planning and obtaining feedback from the manufacturing process.  Statistical process control considers whether process outputs are within acceptable variations from engineering specifications.  A type of CAM known as a flexible manufacturing system is a programmable production process that can be quickly reconfigured to produce different products. There seems to be a problem with the stamping process.

23. C. The Manufacturing Resource Planning (MRP) System MRP systems include the following four subsystems: 1.Production Planning 2.Production Scheduling 3.Cost Accounting 4.Reporting

24. 1. Production Planning Marketing Production Planning Production Planning 1 1. Production requirements for manufactured inventory depend on sales forecasts developed as a part of the budget process. Bill of Materials Master Operations List

25. 1. Production Planning Marketing Production Planning Production Planning 1 2. The sales forecast must be related to the amount of each product that is already held in finished goods inventory. Inventory Control Inventory Control 2 Bill of Materials Master Operations List

26. 1. Production Planning Marketing Production Planning Production Planning 1 3. Raw materials available for production are communicated through raw materials status reports. Inventory Control Inventory Control 2 3 Bill of Materials Master Operations List

27. 1. Production Planning Marketing Production Planning Production Planning 1 4. Labor and machine resources available for production are communicated through a factor availability report. Inventory Control Inventory Control 2 3 Production Departments Production Departments 4 Bill of Materials Master Operations List

28. 1. Production Planning Marketing Production Planning Production Planning 1 5. The processing of production orders results in a master production schedule. Inventory Control Inventory Control 2 3 Production Departments Production Departments 4 5 Bill of Materials Master Operations List

29. 2. Production Scheduling  Routings (RTGs) indicate the sequence of operations required to manufacture a product and contain information about the work center, length of time, and tooling required to perform each task.  Each RTG contains a production order number. As tasks are completed information is input into the computer system to update the production status file.  A scheduling application program uses linear programming and other techniques to determine the optimal assignment of available resources to production.

30. 3. Cost Accounting  The central feature of the cost-accounting application is the updating of the production-status (Work- in-Process) file.  As orders are completed, the related work-in-process record is closed and a record is created to update the finished inventory file.

31. 4. Reporting  The completed production- order file lists all cost data for completed production orders. Outputs of processing this file include an updated finished goods inventory file and a stock status report.  Variances between standard and actual costs are determined to assist in control of production.

32. D. MRP II versus MRP An MRP II system includes the major processing modules of MRP. Some extensions added with MRP II include:  Extensions to bill-of-materials processing might include maintenance of engineering/product drawings from a CADD system.  Extensions to routings filings might include expanded information concerning work center capacity data and maintenance of machine tooling data.

33. E. Advanced Integration Technologies 1. Automatic identification enhances integration by putting machine-readable codes on products and materials. 2. EDI enhances integration by integrating the systems of suppliers and customers. 3. Distributed processing enhances integration by combining geographically dispersed resources into a single system.

34. F. Internal Control Considerations In quick-response manufacturing systems, internal control can become a problem because transactions can be completed with no human intervention. Since it is not feasible to install controls after implementation, controls must be implemented during systems design and implementation.

35. G. Activity-Based Costing CIM integrates the physical manufacturing system and manufacturing resource planning (MRP II) systems. Activity-based costing (ABC) is particularly well suited to a CIM environment because  both ABC and CIM consider the processes that go into making a product, and  CIM’s use of technology results in a less labor- intensive manufacturing environment. This can increase the need for more accurate overhead allocations.

36. Summary  Production System Forms and Reports  The Production Application System  Physical Manufacturing System  Material Requirements Planning (MRP)  Advanced Integration Technologies  Internal Control Considerations  Computer-Integrated Manufacturing and Activity-Based Costing