Conversion

Cycle
Group 2
our team

Anselmo, Rose Mariel Camanse, John Philip Ferrer, Arjean Larosa, Arly

Muyco, Candy Lyn Santos, Yshi Mae Villapaz, Cyrah

The Conversion Cycle
The accounting system records one economic event (transaction),
namely the consumption of raw materials, labor, and overhead to
produce products or services that can be sold.

Consists of two subsystems:

 Physical activities – the production system
 Information activities – the cost accounting system
Cost Accounting System
 Records the financial effects of the events occurring in the production
process
 Initiated by the work order
 Cost accounting clerk creates a new cost record for the batch
and files in WIP file
 The records are updated as materials and labor are used
The Traditional Manufacturing Environment

Conversion Cycle in Relation to Other Cycles

Production System
 Involves the planning, scheduling, and control of the physical
product through the manufacturing process
 determining raw materials requirements
 authorizing the release of raw materials into production
 authorizing work to be conducted in the production process
 directing the movement of work through the various stages of
production

Production Methods
Continuous Processing
Make-to-Order Processing
Batch Processing
Continuous processing creates a homogeneous product through a continuous
series of standard procedures. Typically, under this approach firms attempts to
maintain finished-goods inventory at levels needed to meet expected sales demand

Make-to-order processing involves the fabrication of discrete products in

accordance with customer specifications. This process is initiated by sales order
rather than depleted inventory levels.

Batch processing is the most common method of production. It produces discrete

groups (batches) of products which requires similar items in the batch and same raw
materials and operations. The number of items in the batch tends to be large to
justify the cost of setting up and retooling for each batch run.
 Documents in the Batch Processing System
Production Schedule
it is the formal plan
and authorization to
begin production.
specific products
to be made
quantities to be
produced in each
batch
manufacturing
timetable for
starting and
completing
production
 Documents in the Batch Processing System

Bill of Materials (BOM)

specifies the types and
quantities of the raw
materials and sub-
assemblies used in
producing a single unit of
finished product.

To determine RM
requirements for an
entire batch :
BOM x number of items
in the batch
 Documents in the Batch Processing System

Route Sheet

It shows the production

path that a particular
batch of product follows
during manufacturing. It
specifies the sequence of
operations (machining or
assembly) and the
standard time allocated
to each task.
 Documents in the Batch Processing System

Work Order
draws from BOM
and route sheets,
specify the
materials and
production
(machining,
assembly and so
on) for each batch
with move tickets,
initiate the
manufacturing
process in the
production
departments
 Documents in the Batch Processing System

Move Ticket

Records work done in

each in each work center
and authorizes the
movement of the job or
batch from one work
center to the next.
 Documents in the Batch Processing System

Materials Requisitiom

Authorizes the
storekeeper to release
materials (and
subassemblies) to
individuals or work
centers in the production
processes and only
specifies standard
quantities.
Batch
Production
Activities
Production Planning
and Control
Batch
Production
Activities
Work Center and
Storekeeping
Batch
Production
Activities
Inventory Control
Economic Order Quantity model
the objective of EOQ model is to reduce total
invetory costs
total purchase price of invetory is constant

Parameters of EOQ model

Ordering costs include the cost of preparing documentation, contacting vendors,

processing invetory receipts, maintaining vendor accounts and writing checks.
Inventory order quantity is inversely proportional to ordering cost.

The total cost per year of holding inventories (carrying costs) is a variable that
increases as the quantities ordered increase. These costs include the opportunity cost
of invested funds, storage costs, property taxes and insurance. Inventory order
quantity is directly proportional to carrying cost.
Economic Order Quantity model
Economic Order
Quantity =
where:
Q = economic order quantity
D = annual demand in units
S = the fixed cost of placing each
order
H = the holding or carrying cost per
unit per year
ReOrder Point =
where:
I = lead time
d = daily demand (total
demand/number of working days)
Contros in Traditional Environment
World Class Company
✓ Maintain strategic agility
✓ Motivate and treat employees like appreciating assets
✓ Meet the needs of its customer
✓ Philosophy of customer satisfaction
✓ Philosophy of lean manufacturing
Lean Manufacturing
Lean manufacturing evolved from the Toyota Production
System (TPS) which is based on the Just in Time (JIT) production
model
Improved efficiency and effectiveness in area;
Getting the right products to the right place, at the right time, in
the right quantity while minimizing waste and remaining flexible.
 Lean Manufacturing

PRINCIPLES:

★ PULL PROCESSING - Pulling products from consumer end

★ PERFECT QUALITY - Zero defects from RM, WIP, & FG inventory
★ WASTE MINIMIZATION - Eliminate non-value activities
★ INVENTORY REDUCTION - Reduce inventory costs
★ PRODUCTION FLEXIBILITY - To produce diversity of products
★ ESTABLISHED SUPPLIER RELATIONS - Reliable vendors
★ TEAM ATTITUDE - Attitude as a whole of all employees
Techniques & Technology that
promotes Lean Manufacturing

Physical Reorganizing and / or restructuring of

reorganization the manufacturing process in order
of the to improve its effectiveness and
production efficiency.
facilities
 The
Traditional
Factory
Layout
 Flexible
Production
System
 Automation of the Manufacturing
Process
(The replacement of human labour with autonomous or semi-autonomous
machinery.)

AUTOMATION IN TRADITIONAL MANUFACTURING

Consists of different kinds of machines, each controlled by a single
operator. Requires a great deal of setup time whose costs are
absorbed by massive production runs.

ISLANDS OF TECHNOLOGY
Stand alone machines that are Computer Numerical Controlled, which
can perform multiple operations with minimal human involvement.
 COMPUTER INTEGRATED MANUFACTURING
A completely automated environment that aims to eliminate
unnecessary processes in production.

1. AUTOMATED STORAGE AND RETRIEVAL SYSTEM (AS/RS)

Are computer-controlled conveyor systems that carry raw materials
and products across different production departments. Replaces
traditional Folklifts and their human operators. This helps improve
inventory control, and reduce errors and storage costs.
2. ROBOTICS
Manufacturing robots are useful for performing hazardous
production tasks, and are programmed to perform specific actions
over and over with a high degree of precision.

3. COMPUTER-AIDED DESIGN (CAD)

Is used by engineers to design product faster. It increases their
productivity by improving accuracy, automating repetitive tasks, and
allowing firms to adjust their production quality to be more
responsive to market demands.
4. COMPUTER-AIDED MANUFACTURING (CAM)
Uses computers to assist in the manufacturing process. Utilisation of
this technology improves process productivity, cost and time
estimates, process monitoring and quality, decreased setup times
and labour cost.

Value Stream Mapping

Is a very detailed graphical representation of a company's business
processes. It helps to thoroughtly identify the aspects of it that are
wasteful and unessential, and therefore enebling them to be removed.
Computer-Integrated Manufacturing
System
Require new accounting methods and
new information that:
Show what matters to its customers
Identifies profitable products
Identifies profitable customers
Accounting in a
Identifies Opportunities Lean
Encourages the adoption of value-
added activities and processes
Manufacturing
Efficiently supports multiple users
with both financial and nonfinancial
information
 Activity-Based
Costing (ABC)
what's wrong with A method of allocating costs
Traditional Accounting products/services to facilitate better
Information? planning and control by assigning cost to
Inaccurate Cost Allocations activities based on their use of resources
ma
Promotes Nonlean Behavior and assigning cost objects based on their
Time Lag use of activities.
Financial Orientation ★ Activities - Worked
performed in a firm
★Cost Objects - Reason for
performing activities
 Steps in ABC Approach
1. Determine the cost of activity.
2. Activity cost is assigned to the relevant cost object by means of an
activity driver.

Activity driver - measures the activity consumption by the cost object

Advantages of ABC
 More accurate costing of products/services, customers, and distribution channels;
Identify most & least profitable products and customers;
Accurately tracking costs of activities and processes;
Equipping managers with cost intelligence to drive continuous improvements
Facilitating better marketing mix;
Identifying waste and non-value-added activities

Disadvantages of ABC
Time-consuming and complicated for practical applications over a
sustainable period.
 Value Stream Accounting
it captures costs by value stream rather than by department or activity.
essential aspect in defining value stream accounting is product family. Product
families share common processes from the point of placing the order to shipping
the finished goods to the customer.
It includes all the costs associated with the product family, but makes no distinction
between direct costs and indirect costs.
Raw materials costs are calculated based on how much material has been
purchased for the value stream
Labor costs of employees who work in the value stream are included whether they
design, make or simply transport the product from cell to cell.
 Information System that Supports Lean
Manufacturing
A. Materials Requirement Planning
Automated production planning and control system used to
support inventory management.

Objectives: RM adequcy, inventory and schedules mgt.

Answer:
1. What is needed? (RM)
2. How much is needed? (QTY)
3. When is it needed? (SCHEDULE)
 Information System that Supports Lean
Manufacturing

B. Manufacturing Resource Planning (MRP II)

Integrates product manufacturing & engineering, sales order
processing, customer billing, human resources, and related
accounting functions.

Includes labor hours, material costs and other resources related

to production.
Overview of
MRP System
The Integration of Manufacturing and Finance
Systems within the MRP II Environment
 Information System that Supports Lean
Manufacturing
C. Enterprise Resource Planning (ERP) Systems
Large suites of integrated function-specific modules; capable of
EDI with suppliers and customers.

Improve customer service, reduce production time, increase

productivity, and improve decision making.

Main objective is cost reduction in complex and big companies.

SAP, ORACLE, People Soft, Baan, JD Edwards.

Thank you!