Chapter 12 Production Cycle Ais

C
HAPTER 12
The Production Cycle
2008 Prentice Hall Business Publishing
Accounting Information Systems, 11/e
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INTRODUCTION
Questions to be addressed in this chapter
include:
What are the basic business activities and data
processing operations that are performed in the
production cycle?
What decisions need to be made in the production
cycle, and what information is needed to make these
decisions?
How can the companys cost accounting system help
in achieving the entitys objectives?
What are the major threats in the production cycle
and the controls that can mitigate those threats?
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INTRODUCTION
The production cycle is a recurring set of
business activities and related data
processing operations associated with the
manufacture of products.
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INTRODUCTION
Information flows to the production cycle
from other cycles, e.g.:
The revenue cycle provides information on
customer orders and sales forecasts for use
in planning production and inventory levels.
The expenditure cycle provides information
about raw materials acquisitions and
overhead costs.
The human resources/payroll cycle provides
information about labor costs and availability.
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INTRODUCTION
Information also flows from the expenditure
cycle:
The revenue cycle receives information from the
production cycle about finished goods available for
sale.
The expenditure cycle receives information about raw
materials needs.
The human resources/payroll cycle receives
information about labor needs.
The general ledger and reporting system receives
information about cost of goods manufactured.
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INTRODUCTION
Decisions that must be made in the
production cycle include:
What mix of products should be produced?
How should products be priced?
How should resources be allocated?
How should costs be managed and
performance evaluated?
These decisions require cost data well

beyond that required for external financial
statements.
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INTRODUCTION
Well be looking at how the three basic AIS
functions are carried out in the production
cycle, i.e.:
How do we capture and process data?
How do we store and organize the data for
decisions?
How do we provide controls to safeguard
resources, including data?
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PRODUCTION CYCLE ACTIVITIES

The four basic activities in the production cycle
are:
Product design
Planning and scheduling
Production operations
Cost accounting
Accountants are primarily involved in the fourth

activity (cost accounting) but must understand
the other processes well enough to design an
AIS that provides needed information and
supports these activities.
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are:
Product design
Cost accounting

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PRODUCT DESIGN
The objective of product design is to
design a product that strikes the optimal
balance of:
Meeting customer requirements for quality,
durability, and functionality; and
Minimizing production costs.
Simulation software can improve the

efficiency and effectiveness of product
design.
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PRODUCT DESIGN
Key documents and forms in product
design:
Bill of Materials: Lists the components that
are required to build each product, including
part numbers, descriptions,and quantity.
Operations List: Lists the sequence of steps
required to produce each product, including
the equipment needed and the amount of time
required.
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PRODUCT DESIGN
Role of the accountant in product design:
Participate in the design, because 6580% of
product cost is determined at this stage.
Add value by:
Designing an AIS that measures and collects the
needed data.
Information about current component usage.

Information about machine set-up and materialshandling costs.
Data on repair and warranty costs to aid in future
modification and design.
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PRODUCT DESIGN
Role of the accountant in product design:
Compare
current
component
usage6580%
with projected
Participate
in the
design,
because
of
usage in alternate designs.
product
cost is determined at this stage.
Compare current set-up and handling costs to
projected
Add value
by: costs in alternate designs.
Provide
how
design trade-offs
affect the
total
Designing
an info
AISon
that
measures
and collects
production cost and profitability.
needed data.
Helping the design team use that data to
improve profitability.
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are:
Product design
Cost accounting

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PLANNING AND SCHEDULING

The objective of the planning and
scheduling activity is to develop a
production plan that is efficient enough to
meet existing orders and anticipated
shorter-term demand while minimizing
inventories of both raw materials and
finished goods.
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There are two common approaches to
production planning:
Manufacturing Resource Planning (MRP-II)
Lean Manufacturing
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Lean Manufacturing
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MRP-II is an extension of MRP inventory
control systems:
Seeks to balance existing production capacity
and raw materials needs to meet forecasted
sales demands.
Often referred to as push manufacturing.
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Lean Manufacturing
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Lean manufacturing is an extension of the
principles of just-in-time inventory
systems:
Seeks to minimize or eliminate inventories of
raw materials, work in process, and finished
goods.
Theoretically, produces only in response to
customer orders, but in reality, there are shortrun production plans.
Often referred to as pull manufacturing.
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Comparison of the two systems:
Both plan production in advance.
They differ in the length of the planning horizon.
MRP-II develops plans for up to 12 months ahead.
Lean manufacturing uses shorter planning horizons.
Consequently:
MRP-II is more appropriate for products with
predictable demand and a long life cycle.
Lean manufacturing more appropriate for products with
unpredictable demand, short life cycles, and frequent
markdowns of excess inventory.
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Key documents and forms:
Master production schedule
Specifies how much of each product is to be produced during the

period and when.
Uses information about customer orders, sales forecasts, and finished
goods inventory levels to determine production levels.
Although plans can be modified, production plans must be frozen a
few weeks in advance to provide time to procure needed materials and
labor.
Scheduling becomes significantly more complex as the number of
factories increases.
Raw materials needs are determined by exploding the bill of materials
to determine amount needed for current production. These amounts
are compared to available levels to determine amounts to be
purchased.
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Production order
Authorizes production of a specified quantity of a

product. It lists:
Operations to be performed
Quantity to be produced
Location for delivery
Also collects data about these activities,
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Production order
Materials requisition
Authorizes movement of the needed materials

from the storeroom to the factory floor.
This document indicates:
Production order number
Date of issue
Part numbers and quantities of raw materials
needed (based on data in bill of materials)
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Production order
Materials requisition
Move ticket
Documents the transfer of parts and materials

throughout the factory.
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How can information technology help?
Improve the efficiency of material-handling
activities by using:
Bar coding of materials to improve speed and
accuracy,
RFID tags can eliminate human intervention in the
scanning process,
Up to 40 times faster than using bar-code scanners.

Not impeded by dirt.
Not limited to reading only those items in line of sight.
Much easier to locate needed products and broadcast their
location to forklift operators or other warehouse workers.
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Role of the accountant:
Ensure the AIS collects and reports costs in a
manner consistent with the companys
production planning techniques.
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are:
Product design
Cost accounting

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PRODUCTION OPERATIONS
Production operations vary greatly across
companies, depending on the type of product
and the degree of automation.
The use of various forms of IT, such as robots
and computer-controlled machinery is called
computer-integrated manufacturing (CIM).
Can significantly reduce production costs.
Accountants arent experts on CIM, but they

must understand how it affects the AIS.
One effect is a shift from mass production to customorder manufacturing and the need to accumulate
costs accordingly.
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In a lean manufacturing environment, a
customer order triggers several actions:
System first checks inventory on hand for sufficiency.
Calculates labor needs and determines whether
overtime or temporary help will be needed.
Based on bill of materials, determines what
components need to be ordered.
Necessary purchase orders are sent via EDI.
The master production schedule is adjusted to include

the new order.
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Sharing information across cycles helps
companies be more efficient by timing
purchases to meet the actual demand.
Although the nature of production processes and
the extent of CIM vary, all companies need data
on:
Raw materials used

Labor hours expended
Machine operations performed
Other manufacturing overhead costs incurred
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are:
Product design
Cost accounting

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COST ACCOUNTING
The objectives of cost accounting are:
To provide information for planning,
controlling, and evaluating the performance of
production operations;
To provide accurate cost data about products
for use in pricing and product mix decisions;
and
To collect and process information used to
calculate inventory and COGS values for the
financial statements.
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COST ACCOUNTING
To provide information for planning,
controlling, and evaluating the
performance of production operations;
To
Toaccomplish
provide the
accurate
cost data
products
first objective,
the AISabout
must collect
real-time
data
thein
performance
of production
so
for on
use
pricing and
product activities
mix decisions;
management can make timely decisions.
andtechnology can be especially helpful, e.g.:
RFID
Broadcasting
repair
needs proactively.
To
collect and
process
information used to
Helping in the location of particular items.
calculate
inventory and COGS values for the
financial statements.
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COST ACCOUNTING
To accomplish the second and third objectives, the AIS must

collect costs by various categories and assign them to specific
products and organizational units.
To provide
information
planning,
Requires
careful
coding of costfor
data
during collection because
costs
may be allocated
in different ways
for different reporting
controlling,
and evaluating
the performance
of
purposes.
production operations;
To provide accurate cost data about
products for use in pricing and product
mix decisions; and
To collect and process information used to
calculate inventory and COGS values for
the financial statements.
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COST ACCOUNTING
Types of cost accounting systems:
Job order costing
Assigns costs to a specific production batch or job.
Used when the product or service consists of discretely
identifiable items.
Example: Houses.
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COST ACCOUNTING
Types of cost accounting systems:
Job order costing
Process costing
Assigns costs to each process or work center in the

production cycle.
Calculates the average cost for all units produced.
Used when similar goods or services are produced in
mass quantities and discrete units cant be easily
identified.
Example: Paint.
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COST ACCOUNTING
Accounting for fixed assets:
The AIS must collect and process information
about the property, plant, and equipment used
in the production cycle.
These assets represent a significant portion of
total assets for many companies and need to
be monitored as an investment.
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COST ACCOUNTING
The following information should be
maintained about each fixed asset:
ID number
Serial number
Location
Cost
Acquisition date
Vendor info
Expected life
Expected salvage value
Depreciation method
Accumulated depreciation
Improvements
Maintenance performed
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COST ACCOUNTING
The purchase of fixed assets follows the same
processes as other purchases in the expenditure
cycle (order receive pay).
But the amounts involved necessitate some
modification to the process:
Competitive bidding
Machinery and equipment purchases almost always

involve a formal request for competitive bids.
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COST ACCOUNTING
Competitive bidding
Number of people involved
More people are likely to be involved in reviewing bids

for fixed assets.
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COST ACCOUNTING
Competitive bidding
Payment
Purchases of fixed assets are often paid for in

installments, including interest.
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COST ACCOUNTING
Competitive bidding
Payment The cost of fixed assets justifies more elaborate
controls to safeguard them, including:
Controls
Maintenance of detailed records of each item.

RFID tags to:
Monitor location
Facilitate
preventive
Accounting
Information
Systems,maintenance
11/e
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COST ACCOUNTING
Competitive bidding
Payment
Controls Its critical to formally approve and
accurately record the sale or disposal
Disposal
of fixed assets.
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COST ACCOUNTING
A typical AIS would look something like the
following:
Product design
Engineering specifications result in new records

for both the bill of materials and the operations
list file.
To create these lists, engineering accesses both
files to view designs of similar products.
They also access the general ledger and
inventory files for info about alternate designs.
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COST ACCOUNTING
following:
Product design
Production planning
The sales department enters sales forecasts and

customer special order information.
Production planning uses that information and
data on current inventory levels to develop a
master production schedule.
New records are added to the production order
file to authorize the production of goods.
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COST ACCOUNTING
following:
Product design
Production planning
Cost accounting
New records are added to the work-in-process

file to accumulate cost data.
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COST ACCOUNTING
following:
Product design
Production planning
Cost accounting
The list of operations to be performed is displayed at

workstations.
Instructions are also sent to the CIM interface to guide
operation of machinery and robots.
Materials requisitions are sent to inventory stores to authorize
release of raw materials to production.
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COST ACCOUNTING
Such a system can be used for a job-order or
process costing system.
Both require that data be accumulated about:
Raw materials
Direct labor
Machinery and equipment usage
Manufacturing overhead
The choice of method:

Does not affect how data are collected
Does affect how costs are assigned to products
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COST ACCOUNTING
Raw material usage data:
When production is initiated, the issuance of a
materials requisition triggers a debit (increase) to
work in process and a credit (decrease) to raw
materials inventory.
Work in process is credited and raw materials are
debited for any amounts returned to inventory.
Many raw materials are bar coded so that usage data
is collected by scanning.
RFID tags improve the efficiency of tracking material
usage.
Usage may be entered online for materials such as
liquids that are not conducive to tagging.
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COST ACCOUNTING
Direct labor costs:
Historically, job time tickets were used to
record the time a worker spent on each job
task.
Currently, workers may:
Enter the data on online terminals.
Use coded ID badges, which are run through a
badge reader at the beginning and end of each
job.
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COST ACCOUNTING
Machinery and equipment usage:
Machinery costs make up an ever-increasing
proportion of production costs.
Data about machinery and equipment are collected at
each production step, often with data about labor
costs.
Until recently, data was collected by wiring the factory
so all equipment was linked to the computer system.
Limits the ability to rearrange the shop floor.
3-D simulations can be used to assess the impact of

altering floor layout.
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COST ACCOUNTING
Manufacturing overhead costs:
Includes costs that cant be easily traced to
jobs or processes, such as utilities,
depreciation, supervisory salaries.
Most of these costs are collected in the
expenditure cycle.
An exception is supervisory salaries, which
are collected in the HRM/payroll cycle.
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COST ACCOUNTING
Accountants help control overhead by
assessing how product mix changes will affect
overhead costs.
They should also identify the factors that drive
the changes in these costs.
This information can be used to realign processes
and layout.
Accurate and complete information about

production cycle activities are required to
perform these analyses.
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CONTROL: OBJECTIVES, THREATS,

AND PROCEDURES
In the production cycle (or any cycle), a well-designed
AIS should provide adequate controls to ensure that the
following objectives are met:
All transactions are properly authorized.

All recorded transactions are valid.
All valid and authorized transactions are recorded.
All transactions are recorded accurately.
Assets are safeguarded from loss or theft.
Business activities are performed efficiently and effectively.
The company is in compliance with all applicable laws and
regulations.
All disclosures are full and fair.
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AND PROCEDURES
There are several actions a company can take
with respect to any cycle to reduce threats of
errors or irregularities. These include:
Using simple, easy-to-complete documents with
clear instructions (enhances accuracy and
reliability).
Using appropriate application controls, such as
validity checks and field checks (enhances
accuracy and reliability).
Providing space on forms to record who completed
and who reviewed the form (encourages proper
authorizations and accountability).
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AND PROCEDURES
Pre-numbering documents (encourages recording
of valid and only valid transactions).
Restricting access to blank documents (reduces
risk of unauthorized transaction).
Using RFID tags when feasible to improve data
entry accuracy.
In the following sections, well discuss the

threats that may arise in the four major steps
of the production cycle, as well as general
threats, EDI-related threats, and threats
related to purchases of services.
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THREATS IN PRODUCT DESIGN
The major threats in the product design

process is:
THREAT 1: Poor product design
You can click on the threat above to get more
information on:
The types of problems posed by each threat.
The controls that can mitigate the threat.
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THREATS IN PLANNING AND

SCHEDULING
Threats in the planning and scheduling

process include:
THREAT 2: Over- or under-production
THREAT 3: Suboptimal investment in fixed
assets
You can click on any of the threats above to get
more information on:
The types of problems posed by each threat
The controls that can mitigate the threats.
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THREATS IN PRODUCTION OPERATIONS
Threats in the production operations

process include:
THREAT 4: Theft of inventories and fixed a
ssets
THREAT 5: Disruption of operations
You can click on any of the threats above to get
The types of problems posed by each threat.
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THREATS IN COST ACCOUNTING
Threats in the cost accounting process

include:
THREAT 6: Inaccurate recording and process
ing of production activity data
You can click on the threat above to get more
information on:
The types of problems posed by the threat.
The controls that can mitigate the threat.
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You can click on any of the threats below to get

The types of problems

posed by each threat.
GENERAL
THREATS
Two general objectives pertain to activities

in every cycle:
Accurate data should be available when needed.
Activities should be performed efficiently and
effectively.
Threats in the process of ordering goods

include:
THREAT 7: Loss, alteration, or unauthorized discl
osure of data
THREAT 8: Poor performance
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PRODUCTION CYCLE INFORMATION

NEEDS
In a manufacturing environment, the focus
must be on total quality management.
Managers need info on:
Defect rates
Breakdown frequency
Percent of finished goods needing rework
Percent of defects discovered by customers
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NEEDS
In traditional systems, this type of data
was not well linked with financial data, and
cost accounting systems were separate
from production operations information
systems.
However, both financial and operating
information are needed to manage and
evaluate these activities.
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NEEDS
Two major criticisms have been directed at
traditional cost accounting systems:
Overhead costs are inappropriately allocated
to products.
Reports do not accurately reflect effects of
factory automation.
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NEEDS
Overhead costs are inappropriately
allocated to products.
factory automation.
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CRITICISM 1: INAPPROPRIATE
ALLOCATION OF OVERHEAD COSTS
Traditional cost accounting systems use
volume-driven bases such as direct labor
hours or machine hours to apply
overhead.
However, overhead does not vary with
production volume.
EXAMPLE: Purchasing costs vary with the
number of purchase orders processed.
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Allocating overhead based on output
volume:
Overstates the costs of products
manufactured in large quantities.
Understates the costs of products
manufactured in small batches.
Also, allocating overhead based on direct

labor input can distort costs.
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Example of two products:
Product one uses:
$5 of materials
1 hour of labor
5 minutes of machine time
Product two uses:

$5 of materials
1 hour of labor
42 hours of machine time on very expensive
equipment
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Example of two products:
Product one uses:
$5 of materials
1 hour of labor
5 minutes of machine time
Product two uses:
Under a traditional
cost accounting
system, both
products will
appear to have the
same cost.
$5 of materials
1 hour of labor
42 hours of machine time on very expensive
equipment
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Solution to criticism 1: Activity Based
Costing (ABC)
ABC can refine and improve cost allocations
under either job-order or process costing
systems.
ABC traces costs to the activities that create them
and allocates them accordingly.
ABC aims to link costs to corporate strategy.
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Corporate strategy results in decisions about
what goods and services to produce.
These activities incur costs.
So corporate strategy determines costs.
By measuring the costs of the basic activities,

ABC provides information to management for
evaluating the consequences of their decisions.
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ABC vs. traditional cost systems:
There are three significant differences between
ABC and traditional approaches.
Tracing of overhead costs
Number of cost pools
Identification of cost drivers
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ABC and traditional cost accounting approaches.
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ABC directly traces a larger proportion of
overhead costs to products.
This tracing is made possible by advances
in IT.
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ABC uses a greater number of cost pools
EXAMPLES: Setup, inspection, and material
to accumulate
indirect
handling
costs. costs
Accumulated
(manufacturing
overhead).
for a batch and allocated to the
products in that batch.
Most systems
lump all
overhead
together,
Consequently,
costs
per product will
be less
when products arethree
made incategories:
larger quantities.
but ABC distinguishes
- Batch-related overhead
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environmental
regulations,
ABC uses aExamples:
greaterR&D,
number
of cost
pools and
purchasing costs.
to accumulate
indirect
These
costs are costs
related to the diversity of the
companys
product line.
(manufacturing
overhead).
ABC attempts to link these costs to the products
Most systems
allthem.
overhead together,
thatlump
generate
For example, purchasing
costs might be
three
categories:
allocated to products based on the number of
- Batch-related
purchase
orders generated for each product.
overhead
- Product-related overhead
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ABC uses a greater number of cost pools
to accumulate indirect costs
(manufacturing overhead).
Most systems lump all overhead together,
three
EXAMPLE:
Rentcategories:
or depreciation.
These costs are applied to all products
- Batch-related overhead
and allocated according to departmental
- Product-related overhead
or plant rates.
- Company-wide overhead
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Benefits of ABC systems
ABC systems are more costly and complex.
But proponents argue two important benefits:
More accurate cost data result in better product
mix and pricing decisions.
More detailed cost data improve managements
ability to control and manage total costs.
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More accurate cost data result in better
product mix and pricing decisions
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Better decisions
ABC avoids problems of applying too much or
too little overhead to products and
consequently results in better price decisions.
ABC uses the data collected to improve
product design.
ABC provides management with the
information about the costs associated with
specific activities, resulting in better analysis
and decisions.
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More accurate cost data result in better product
mix and pricing decisions.
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Improved cost management
ABC measures the results of managerial
actions on overall profitability.
ABC measures both the amount spent to
acquire resources and the amount spent to
consume them.
ABC measures unused capacity:
Cost of activity capability = Cost of activity used +
Cost of unused capacity
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EXAMPLE: A publishing company has five
employees who operate printing presses.
The employees each have annual salaries of
$25,000 for a total salary cost of $125,000.
Each employee should be able to print about 10,000
books per year.
The total capacity, therefore is 50,000 books.
The salary cost per book would be $125,000 /
50,000 books = $2.50 per book.
During the most recent year, the presses produced
47,000 books.
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The cost of the activity capability is the total
The employees
each have annual salaries of
book capacity for the year of 50,000 books times
$25,000 for a total
salary cost of $125,000.
the salary cost per book of $2.50.
Each employee
should
be xable
about 10,000
50,000
books
$2.50to= print
$125,000.
books per year.
47,000 books.
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The employees each have annual salaries of
$25,000 for a total
The cost of the activity used is the number of
Each employeebooks
should
be able
to print
about
10,000
actually
produced
times
the salary
cost
books per year.per book of $2.50.
47,000 books x $2.50 = $117,500.
The total capacity,
therefore is 50,000 books.
47,000 books.
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The unused
capacity is the difference between
CRITICISM
1: INAPPROPRIATE
the activity capability ($125,000) and the cost of
ALLOCATION
OF OVERHEAD
COSTS
the activity
used ($117,500).
$125,000 - $117,500 = $7,500 unused capacity.

EXAMPLE: A publishing
has five
Alternately, company
unused capacity
can be calculated as
cost perprinting
book of $2.50
times the difference
employees whothe
operate
presses.
the books that could be produced and
The employeesbetween
each
have
annual salaries of
the books that were actually produced.
$25,000 for a total
$2.50 x (50,000 possible books 47,000 actual
Each employeebooks)
should
be able
to print
about 10,000
= $7,500
unused
capacity.
books per year.

47,000 books.
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Management may be able to improve
profitability by:
- Applying the unused capacity to other
revenue-generating activities; or
- Eliminating the unused capacity.
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NEEDS
Overhead costs are inappropriately allocated
to products.
factory automation.
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CRITICISM 2: REPORTS DO NOT ACCURATELY

REFLECT EFFECTS OF AUTOMATION
When an organization transitions from a

traditional production system to a lean
manufacturing system, inventory levels
are depleted. Consequently, almost all
production costs of the year are expensed
that year.
Although the effect is temporary,
managers will be concerned if their
performance evaluations are based on the
companys reported financial statements.
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Solution to criticism two: Better reports

and measures
Produce reports based on lean accounting
principles.
Report for each product all costs incurred to

design, produce, sell, deliver, process customer
payments, and provide post-sale support for that
product.
Separate overhead costs from COGS.
Identify changes in inventory levels as a
separate expense item.
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Solution to criticism two: Better reports

and measures
Produce reports based on lean accounting
principles.
Develop resources to focus on issues
important to production cycle managers.
Examples:
Useable output produced per time period.
Monitoring of product quality.
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THROUGHPUT: A MEASURE OF
PRODUCTION EFFECTIVENESS
Throughput = Productive Capacity x
Productive Processing Time x Yield
Productive Capacity = Total Units
Produced / Processing Time
Can be improved by:
Improving machine or labor efficiency.
Improving factory layout.
Simplifying product design specifications.
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Productive Capacity = Total Units Produced /
Processing Time
Productive Processing Time = Processing
Time / Total Time
The opposite of downtime.
Can be improved by:
Better maintenance to reduce machine downtime.
Better scheduling of deliveries to reduce wait time.
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Productive Capacity = Total Units Produced /
Processing Time
Productive Processing Time = Processing
Time / Total Time
Yield = Good Units / Total Units
Can be improved by:
Using better raw materials.
Improving worker skills.
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Throughput = Productive Capacity x Productive
Processing Time x Yield
Productive Capacity = Total Units Produced / Processing Time
Productive Processing Time = Processing Time / Total Time
Yield = Good Units / Total Units
EXAMPLE: Manster Co. produced 1,000 bottles of Zithmowash in

a 10-hour period. During this period there was a total of 1 hour of
machine downtime and waiting time for materials. One hundred
of the bottles were defective.
PRODUCTIVE CAPACITY = 1,000 bottles / 9 productive hours =
111.11 bottles / hour.
PRODUCTIVE PROCESSING TIME = 9 productive hours / 10 total
hours = .90.
YIELD = 900 good units / 1,000 total units = .90
THROUGHPUT = 111.11 x .90 x .90 = 90
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QUALITY CONTROL
Information about quality control
Quality control costs can be divided
into four categories:
Prevention costs
Costs incurred to reduce product defect rates.
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QUALITY CONTROL
Prevention costs
Inspection costs
Costs incurred to ensure products meet quality
standards.
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QUALITY CONTROL
Prevention costs
Inspection costs
Internal failure costs
Costs of rework and scrap when products are
identified as defective prior to sale.
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QUALITY CONTROL
Costs when defective products are sold to

Prevention costs
customers, e.g., warranty and repair costs,
Inspection
costs costs, costs of customer
product liability
dissatisfaction,
and damage to reputation.
Internal
failure costs
External failure costs
Romney/Steinbart
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QUALITY CONTROL
Prevention
Some companies
costs have found that the most
importantcosts
management decision involves
Inspection
switching from the traditional "management by
Internal
failure costs
exception" philosophy to a "continuous
External
failure costs
improvement"
viewpoint. Continuous
focuses
on comparing
The improvement
objective of
quality
control actual
is to
performance to the ideal (i.e., perfection).
minimize the sum of these four costs.
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SUMMARY
Youve learned about the basic business
activities and data processing operations that
are performed in the production cycle, including:
Product design
Production planning and scheduling
Cost accounting
Youve learned how IT can improve the

efficiency and effectiveness of these processes.
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SUMMARY
Youve learned about decisions that need to be
made in the production cycle and the information
required to make these decisions.
Youve also learned about the major threats that
present themselves in the production cycle and
the controls that can mitigate those threats.
Finally, youve learned how the companys cost
accounting system can help in achieving the
entitys objectives.
Romney/Steinbart
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C

The Production Cycle

2008 Prentice Hall Business Publishing

Accounting Information Systems, 11/e

Accounting Information Systems, 11/e

2008 Prentice Hall Business Publishing

Accounting Information Systems, 11/e

Accounting Information Systems, 11/e

Accounting Information Systems, 11/e

These decisions require cost data well

Accounting Information Systems, 11/e

2008 Prentice Hall Business Publishing

Accounting Information Systems, 11/e

PRODUCTION CYCLE ACTIVITIES

Accountants are primarily involved in the fourth

Accounting Information Systems, 11/e

PRODUCTION CYCLE ACTIVITIES

Accountants are primarily involved in the fourth

Accounting Information Systems, 11/e

Simulation software can improve the

Accounting Information Systems, 11/e

Accounting Information Systems, 11/e

Information about current component usage.

2008 Prentice Hall Business Publishing

Accounting Information Systems, 11/e

2008 Prentice Hall Business Publishing

Accounting Information Systems, 11/e

PRODUCTION CYCLE ACTIVITIES

Accountants are primarily involved in the fourth

Accounting Information Systems, 11/e

PLANNING AND SCHEDULING

2008 Prentice Hall Business Publishing

Accounting Information Systems, 11/e

PLANNING AND SCHEDULING

2008 Prentice Hall Business Publishing

Accounting Information Systems, 11/e

PLANNING AND SCHEDULING

2008 Prentice Hall Business Publishing

Accounting Information Systems, 11/e

PLANNING AND SCHEDULING

2008 Prentice Hall Business Publishing

Accounting Information Systems, 11/e

PLANNING AND SCHEDULING

2008 Prentice Hall Business Publishing

Accounting Information Systems, 11/e

PLANNING AND SCHEDULING

Accounting Information Systems, 11/e

PLANNING AND SCHEDULING

Accounting Information Systems, 11/e

PLANNING AND SCHEDULING

Specifies how much of each product is to be produced during the

2008 Prentice Hall Business Publishing

Accounting Information Systems, 11/e

PLANNING AND SCHEDULING

Authorizes production of a specified quantity of a

Also collects data about these activities,

2008 Prentice Hall Business Publishing

Accounting Information Systems, 11/e

PLANNING AND SCHEDULING

Authorizes movement of the needed materials

2008 Prentice Hall Business Publishing

Accounting Information Systems, 11/e

PLANNING AND SCHEDULING