Production Cycle Activities
1. Product design
2. Planning and scheduling
3. Production operations
4. Cost accounting
One popular approach to improving manufacturing performance, called Six
Sigma, begins with careful measurement and analysis of current processes in
order to find ways to improve them.
Product Design
The objective of this activity is to design a product that meets customer
requirements in terms of quality, durability, and functionality while
minimizing production costs.
Key Documents and Forms
The product design activity creates two main documents:
1. Bill of materials which specifies the part number,
description, and quantity of each component used in a finished
product
2. An operations list, which specifies the sequence of steps to
follow in making the product, which equipment to use, and how
long each step should take.
Role of the Accountant
Accountants should participate in product design because 65 percent to
80 percent of product costs are determined at the product design stage.
Production costs can be reduced by increasing the number of common
components used for a line of related products.
Accountants can add value if they not only design the AIS to measure
and collect the relevant cost data, but also, if they help the design
team to use that data proactively to improve profitability.
Planning and Scheduling
Planning Methods
Two common methods of production planning are management resource
planning and lean manufacturing.
Manufacturing resource planning (MRP-II) is an extension of materials
resource planning, covered in chapter 11, that seeks to balance
existing production capacity and raw material needs to meet forecasted
sales demands. MRP systems are often referred to as push manufacturing,
because goods are produced in expectation of customer demand.
Lean manufacturing extends the principles of just-in-time systems to
the entire production process.
Lean manufacturing is often referred to as pull manufacturing, because
goods are produced in response to customer demand.
However, in practice, most lean manufacturing systems develop short-run
production plans.
Both MRP-II and lean manufacturing systems plan production in
advance.
MRP-II systems may develop production plans for up to 12
months in advance.
Lean manufacturing systems use much shorter planning
horizons.
Key Documents and Forms
The master production schedule (MPS) specifies how much of each product
is to be produced during the planning period and when that production
should occur (Refer to Figure 14-6 on page 432).
The MPS is used to develop a detailed timetable that specifies daily
production and to determine if raw materials need to be purchased. To
do this, it is necessary to “explode” the bill of materials to meet the
production goals as listed in the MPS (see Table 14-2 on page 433).
This figure shows that the planning and scheduling activity produces
three other documents:
1. A production order which authorizes the manufacture of a
specified quantity of a particular product. A sample of the
production order is provided in Figure 14-7 on page 434.
2. A materials requisition authorizes the removal of the necessary
quantity of raw materials from the storeroom to the factory
location where they will be used. A sample of the materials
requisition is provided in Figure 14-8 on page 434.
3. Subsequent transfers of raw materials throughout the factor are
documented on move tickets, which identify the parts being
transferred, the location to which they are transferred and the
time of transfer. A sample of the move ticket is provided in
Figure 14-9 on page 435.
Bar-coding improved the speed and accuracy of recording information
about material movements be eliminating the need to manually enter
data.
More recently, radio-frequency identification (RFID) tags further
improve efficiency by eliminating the need for any human
intervention in the scanning process. This makes RFID scanner up to
40 times faster than bar-code scanners.
Surveys estimate that as much as 10 percent to 20 percent of
handling materials in the warehouse is spent on looking for the
right product. RFID technology can eliminate this cost. RFID tags
have a scanner that broadcasts a signal to locate the desired
product.
Role of the Accountant
The accountant must ensure that the AIS collects and reports costs
in a manner consistent with the production planning techniques of
the company.
Lean manufacturing emphasizes working in teams and seeks to maximize
the efficiency and synergy of all teams involved in making a
particular product.
Production Operations
The third step in the production cycle is the actual manufacture of
products.
Using various forms of IT in the production process, such as robots and
computer-controlled machinery, is referred to as computer-integrated
manufacturing (CIM).
Accountants are not required to be experts on every facet of CIM, but
they must understand how it affects the AIS.
In order to minimize inventory carrying costs, the AIS must maintain
accurate perpetual inventory records. This 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 available (from the
HR/payroll cycle).
Every firm requires cost accounting data about the following four
facets of its production operations:
1. Raw materials used
2. Labor hours expended
3. Machine operations performed
4. Other manufacturing overhead costs incurred
