Accounting information systems controls and process 2nd tunnwe weickgenannt chapter 11

SECOND EDITION Chapter 11-1 Prepared by CobybyHarmon Prepared Coby Harmon University of California, Santa Barbara University of California, Santa Barbara Westmont Westmont CollegeCollege Conversion Processes and Controls Chapter 11-2 Study Study Objectives Objectives Basic features of conversion processes The components of the logistics function Cost accounting reports generated by conversion processes Risks and controls in conversion processes IT systems of conversion processes Ethical issues related to conversion processes Corporate governance in conversion processes Chapter 11-3 Real Real World World Nissan Motor Company’s automobile plant near Jackson, Mississippi, has cutting-edge technology and robotic assemblers “Assembly lines are powered by enormous robots; at one stop in the line, a bay of over 25 robots each make 12 welds per second Suppliers are tied into the line by computers; parts actually arrive in the order they’ll be used.” The complex technology allows Nissan to handle four different models in random order and to finish a vehicle in 13 hours The plant can produce 400,000 vehicles in a five-day period with two shifts operating Chapter 11-4 Basic Basic Features Features of of Conversion Conversion Processes Processes Conversion processes involve activities related to the transformation of resources into goods or services Resources include: Chapter 11-5  Materials  Labor  Overhead  Various other expenses necessary to run the operating facility SO Basic features of conversion processes Basic Basic Features Features of of Conversion Conversion Processes Processes Major activities within this process include Chapter 11-6  Operational planning,  Optimizing use of employees, property, and inventories,  Controlling production flows,  Ensuring product quality, and  Preparing related cost accounting and financial accounting records SO Basic features of conversion processes Exhibit 11-1 Conversion Processes within the Overall System Basic Basic Features Features of of Conversion Conversion Processes Processes Chapter 11-7 SO Basic features of conversion processes Basic Basic Features Features of of Conversion Conversion Processes Processes Exhibit 11-2 Overview of the Conversion Processes Chapter 11-8 SO Basic features of conversion processes Basic Basic Features Features of of Conversion Conversion Processes Processes Concept Check Manufacturing has changed in recent years as a result of each of the following factors except: a globalization b technological advances c increased competition d lack of economic prosperity Chapter 11-9 SO Basic features of conversion processes Components Components of of the the Logistics Logistics Function Function Logistics is the logical, systematic flow of resources throughout the organization Three primary components: Chapter 11-10  planning,  resource management, and  operations SO The components of the logistics function IT IT Systems Systems of of Conversion Conversion Processes Processes Match IT systems on left with their definitions on the right: CAD a A network including production equipment, computer terminals, and accounting systems CAM b Electronic workstation including advanced graphics and 3-D modeling of production processes MRP c Automated scheduling of manufacturing resources, including scheduling, capacity, and forecasting functions MRP-II ERP d The minimization of inventory levels by the control of production so that products are produced on a tight schedule in time for their sale CIMs e A single software system that includes all manufacturing and related accounting applications JIT RFID Chapter 11-33 f Automated scheduling of production orders and materials movement g Production automation, including use of computers and robotics h The use of tiny tags affixed to inventory items to automatically monitor movement and account for the various stages of processing SO IT IT Systems Systems of of Conversion Conversion Processes Processes Match IT systems on left with their definitions on the right: CAD a A network including production equipment, computer terminals, and accounting systems CAM b Electronic workstation including advanced graphics and 3-D modeling of production processes MRP MRP-II c Automated scheduling of manufacturing resources, including scheduling, capacity, and forecasting functions ERP d The minimization of inventory levels by the control of production so that products are produced on a tight schedule in time for their sale CIMs e A single software system that includes all manufacturing and related accounting applications JIT RFID Chapter 11-34 f Automated scheduling of production orders and materials movement g Production automation, including use of computers and robotics h The use of tiny tags affixed to inventory items to automatically monitor movement and account for the various stages of processing SO IT IT Systems Systems of of Conversion Conversion Processes Processes Match IT systems on left with their definitions on the right: CAD a A network including production equipment, computer terminals, and accounting systems CAM b Electronic workstation including advanced graphics and 3-D modeling of production processes MRP MRP-II c Automated scheduling of manufacturing resources, including scheduling, capacity, and forecasting functions ERP d The minimization of inventory levels by the control of production so that products are produced on a tight schedule in time for their sale CIMs e A single software system that includes all manufacturing and related accounting applications JIT RFID Chapter 11-35 f Automated scheduling of production orders and materials movement g Production automation, including use of computers and robotics h The use of tiny tags affixed to inventory items to automatically monitor movement and account for the various stages of processing SO IT IT Systems Systems of of Conversion Conversion Processes Processes Match IT systems on left with their definitions on the right: CAD a A network including production equipment, computer terminals, and accounting systems CAM b Electronic workstation including advanced graphics and 3-D modeling of production processes MRP MRP-II c Automated scheduling of manufacturing resources, including scheduling, capacity, and forecasting functions ERP d The minimization of inventory levels by the control of production so that products are produced on a tight schedule in time for their sale CIMs e A single software system that includes all manufacturing and related accounting applications JIT RFID Chapter 11-36 f Automated scheduling of production orders and materials movement g Production automation, including use of computers and robotics h The use of tiny tags affixed to inventory items to automatically monitor movement and account for the various stages of processing SO IT IT Systems Systems of of Conversion Conversion Processes Processes Match IT systems on left with their definitions on the right: CAD a A network including production equipment, computer terminals, and accounting systems CAM b Electronic workstation including advanced graphics and 3-D modeling of production processes MRP MRP-II c Automated scheduling of manufacturing resources, including scheduling, capacity, and forecasting functions ERP d The minimization of inventory levels by the control of production so that products are produced on a tight schedule in time for their sale CIMs e A single software system that includes all manufacturing and related accounting applications JIT RFID Chapter 11-37 f Automated scheduling of production orders and materials movement g Production automation, including use of computers and robotics h The use of tiny tags affixed to inventory items to automatically monitor movement and account for the various stages of processing SO IT IT Systems Systems of of Conversion Conversion Processes Processes Match IT systems on left with their definitions on the right: CAD a A network including production equipment, computer terminals, and accounting systems CAM b Electronic workstation including advanced graphics and 3-D modeling of production processes MRP MRP-II c Automated scheduling of manufacturing resources, including scheduling, capacity, and forecasting functions ERP d The minimization of inventory levels by the control of production so that products are produced on a tight schedule in time for their sale CIMs e A single software system that includes all manufacturing and related accounting applications JIT RFID Chapter 11-38 f Automated scheduling of production orders and materials movement g Production automation, including use of computers and robotics h The use of tiny tags affixed to inventory items to automatically monitor movement and account for the various stages of processing SO IT IT Systems Systems of of Conversion Conversion Processes Processes Match IT systems on left with their definitions on the right: CAD a A network including production equipment, computer terminals, and accounting systems CAM b Electronic workstation including advanced graphics and 3-D modeling of production processes MRP MRP-II c Automated scheduling of manufacturing resources, including scheduling, capacity, and forecasting functions ERP d The minimization of inventory levels by the control of production so that products are produced on a tight schedule in time for their sale CIMs e A single software system that includes all manufacturing and related accounting applications JIT RFID Chapter 11-39 f Automated scheduling of production orders and materials movement g Production automation, including use of computers and robotics h The use of tiny tags affixed to inventory items to automatically monitor movement and account for the various stages of processing SO IT IT Systems Systems of of Conversion Conversion Processes Processes Concept Check Which of the following is not considered a benefit of using computerized conversion systems? a Automatic computation of materials requirements b Increased sales and cost of sales c Increased efficiency and flexibility d Early error detection and increased accuracy Chapter 11-40 SO IT systems of conversion processes IT IT Systems Systems of of Conversion Conversion Processes Processes Concept Check Which of the following represents a method of managing inventory designed to minimize a company’s investment in inventories by scheduling materials to arrive at the time they are needed for production? a The economic order quantity (EOQ) b Material resource planning (MRP) c First-in, first-out (FIFO) d Just-in-time (JIT) Chapter 11-41 SO IT systems of conversion processes IT IT Systems Systems of of Conversion Conversion Processes Processes Concept Check For which of the following computerized conversion systems is Wal-Mart well known? a CAD/CAM b MRP-II c CIMs d JIT Chapter 11-42 SO IT systems of conversion processes In the mid-1960s, most retailers were not yet Real World Real World focused on computerized operations Although there were only 20 Wal-Mart stores at that time, Sam Walton was already focused on the need to computerize merchandise controls in order to outpace competitors like Kmart, Target, and Woolworth Sam Walton recruited the top student from IBM’s New York training school to come to Bentonville, Arkansas, to lead Wal-Mart’s computerization efforts Sam Walton’s foresight brought unprecedented success Today, Wal-Mart is known for its sophisticated logistics and just-in-time inventory system Its computer database is one of the largest in existence for a retail company In addition, Wal-Mart uses RFID technology to track and record inventories, and requires that its top suppliers also use RFID When its suppliers use RFID, it allows Wal-Mart to track purchased items as they are received at distribution warehouses, loaded on trucks, and moved to retail stores Within the retail stores, it allows workers to easily determine what is on the shelves and what might be missing For example, they could quickly see which size of Wrangler jeans is out of stock on the shelves This allows them to quickly Chapter restock, which improves sales and leads to SO more customers satisfied IT systems of conversion processes 11-43 Ethical Ethical Issues Issues Related Related to to Conversion Conversion Processes Processes Earnings management is the act of misstating financial information in order to improve financial statement results Absorption costing involves the inclusion of both variable and fixed costs in the determination of unit costs for ending inventories and cost of goods sold Chapter 11-44 SO Ethical issues related to conversion processes Real Real World World In the early 1990s, an inventory fraud scheme was discovered at F&C International, Inc is a manufacturer of flavors and fragrances, with operations in New York and Cincinnati Its founder and majority owner, Jon Fries, engaged in a series of frauds, all of which involved the conversion process Fries mislabeled inventory items in order to overstate their value, recorded fictitious production and shipping activities, and falsified sales figures in an attempt to meet projections He even appointed a task force of employees who were ordered to carry out these plans The task force was also instructed to alter reports and destroy certain supporting documentation His motive for committing these crimes was threefold: He desired to increase profits in order to improve the reputation of the company, improve his relationship with the company’s debtors in order to expand his borrowing potential, and increase his own compensation Fries was convicted of fraud and served a prison sentence The frauds he orchestrated led to the company’s ultimate downfall Chapter 11-45 SO Ethical issues related to conversion processes Corporate Corporate Governance Governance in in Conversion Conversion Processes Processes The internal controls and ethical tone and procedures within the conversion process are also part of the corporate governance structure Establishing and maintaining reliable inventory management processes, internal controls, and ethical practices help ensure proper financial stewardship Chapter 11-46 SO Corporate governance in conversion processes Copyright Copyright Copyright © 2013 John Wiley & Sons, Inc All rights reserved Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc The purchaser may make back-up copies for his/her own use only and not for distribution or resale The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein Chapter 11-47 ... duties Adequate records and documents Chapter 11- 24 SO Risks and controls in conversion processes Risks Risks and and Controls Controls in in Conversion Conversion Processes Processes Common procedures... quantity of inventory in process Chapter 11- 27 SO Risks and controls in conversion processes IT IT Systems Systems of of Conversion Conversion Processes Processes Computerized systems may provide... 11- 25 SO Risks and controls in conversion processes Risks Risks and and Controls Controls in in Conversion Conversion Processes Processes Concept Check Which of the following internal controls is