PRODUCTION CYCLE

CHAPTER 14

CREATED BY :
1. KHUROTUL AINI (2017310019)
2. ARINTA DEWI N. (2017310045)
3. PUTRI DARDANERA (2017310067)
4. MIFTAHATUL QULUB . (2017310139)
5. CHOIRUN NISA (2017310144)

STIE PERBANAS SURABAYA

2019/2020
 PRODUCTION CYCLE
The production cycle is a series of repetitive business activities and information
processing operations associated with manufacturing products. The revenue cycle information
system provides information (customer orders and sales estimates) used to plan production and
inventory levels. In return, the production cycle information system sends income cycle
information about finished goods that have been produced and are available for sale. Information
about raw material requirements is sent to the expenditure cycle information system in the form of
a purchase request.
Instead, the expenditure cycle system provides information about the acquisition of raw materials
and also about other expenses that are included in factory overhead. Information about labor needs
is sent to the human resource cycle, which in turn provides data on labor costs and availability.
Finally, information about the cost of production is sent to the general ledger and reporting
information system.

Production Cycle Information System

Part of corporate resource planning (ERP) that supports an organization's production cycle,
namely:

1. Process
Production cycle information systems integrate operational and financial data from many
sources. The engineering department is responsible for developing product specifications.
A bill of material file stores information about product components, and an operation list
file contains information about how to make each product. To develop the specifications,
the engineering accesses both files to check the design of similar products. It also accesses
general ledgers and inventory files for information needed to calculate alternative product
design costs. The sales department enters information about sales estimates and customer
orders. The production planning department uses that information, plus data on current
inventory levels, to develop key production schedules and make new records in production
order files to authorize the production of certain goods. At the same time, new records are
 added to the file in the process of collecting cost data. Material requests are sent to the
inventory store department to allow the release of raw materials. The computer integrated
manufacturing interface (CIM) sends detailed instructions to the factory workstation. The
CIM interface also collects cost and operational data used to update work-in-process files
and production orders, respectively.

A. Product Design
The first step in the production cycle is product design. The aim is to create
products that meet customer requirements in terms of quality, durability, and functionality
while minimizing production costs. These criteria often conflict with each other, making
product design a challenging task.

1. Process
Product design activities create two outputs. The first, the bill of material,
determines the part number, description, and number of each component used in the
finished product. The second is a list of operations, which determine the sequence of
steps to be followed in making the product, the equipment used, and how long each step
must be taken.
Tools such as product lifecycle management software (PLM) can help improve the
efficiency and effectiveness of the product design process. PLM software consists of
three main components: computer-aided design (CAD) software for designing new
products, digital manufacturing software that simulates how products will be produced,
and product data management software that stores all data related to the product .

2. Threats and Control

Poor product design raises costs in several ways. Using too many unique
components when producing similar products increases the costs associated with
purchasing and maintaining raw material inventories. To reduce this threat, accountants
must participate in product design activities because 65% to 80% of product costs are
 determined at this stage of the production process. Accountants can analyze how the use
of alternative components and changes in the production process affect costs.

B. Planning and Scheduling

The second step in the production cycle is planning and scheduling. The aim is to
develop a production plan that is efficient enough to meet existing orders and anticipate short-
term demand while minimizing the supply of raw materials and finished goods.
1. Production planning method
Two common methods of production planning are manufacturing resource
planning and lean manufacturing. Manufacturing resource planning (MRP-II) is an
extension of material requirements planning that seeks to balance existing production
capacity and raw material requirements to meet estimated sales demand. The purpose of
lean manufacturing is to minimize or eliminate the supply of raw materials, work in process,
and finished goods. Lean manufacturing is often referred to as pull manufacturing, because
goods are produced in response to customer demand. Theoretically, lean manufacturing
systems only produce in response to customer orders.
2. Documents and form of key
Information about customer orders, sales estimates, and inventory levels of
finished goods is used to determine the level of production. The result is the main production
schedule (MPS), which determines how much each product will be produced during the
planning period and when it should occur. Although the long-term portion of the MPS can
be modified to respond to changing market conditions, production plans for many products
must be frozen several weeks in advance to provide sufficient time to obtain the needed raw
materials, supplies and labor resources.
3. Threats and control
Indicates that the main threat in planning and scheduling activities is excess or
lack of production. Overproduction can cause the supply of goods to exceed short-term
demand, thus creating a potential cash flow problem because resources are bound in
inventory. Overproduction also increases the risk of carrying inventory that becomes
obsolete. This threat is very important for companies that produce new and innovative
products, such as current fashion clothing, because the demand for these products is far
 more volatile than the demand for staples and commodities, such as food or office supplies.
Careful review and approval also ensures that the correct production orders are released.
The risk of unauthorized production orders can be reduced by limiting access to the
production scheduling program.

C. Production Operation

The third step in the production cycle is the manufacture of actual products. The manner in which
these activities are carried out varies greatly across companies, differing according to the type of
product being manufactured and the level of automation used in the production process. Using
various forms of information technology (IT) in the production process, such as robots and
computer-controlled machines, is referred to as computer-integrated manufacturing (CIM). The
ability to install sensors to each piece of equipment (part of what is sometimes called the Industrial
Internet of Things) makes it easy to ensure that preventive maintenance is carried out, thus
avoiding costs and delays due to damage.
1.Threats and control
Theft of inventory and fixed assets is a major problem. In addition to losing
assets, theft also results in excessive asset balances, which can lead to incorrect analysis of
financial performance and underproduction. To reduce the risk of loss of inventory,
physical access to inventory must be limited, and all internal movements of inventory must
be documented. Inventory control officers and production employees who receive raw
materials must sign a requisition to determine the release of the goods to production.
Maintaining physical storage of raw materials and finished goods inventory is the
responsibility of the inventory store department. The department or factory supervisor has
primary responsibility for the inventory of work in progress.

D. Cost Accounting
The final step in the production cycle is cost accounting. The main objectives of a cost
accounting system are:
1. to provide information for planning, controlling, and evaluating the performance of
production operations
2. to provide accurate cost data about products for use in pricing and product mix decisions;
3. to collect and process information used to calculate the value of inventories and cost of goods
sold that appear in the company's financial statements.
To achieve the other two objectives, the cost accounting system must classify costs according
to various categories and then assign these costs to specific products and organizational units.
This requires careful coding of cost data during collection, because often the same costs can be
allocated in various ways, for several different purposes.
1. Process
Most companies use work orders or processing costs to determine production
costs. Work order costs determine the costs for a particular set of production, or work,
and are used when the product or service sold consists of items that can be separately
identified.
How data about raw materials are used, working hours are issued, machine operations
are carried out, and manufacturing overhead is collected;
a. data usage data raw materials
b. direct labor costs
c. use of machinery and equipment
d. manufacturing overhead
2. Threats and control
1. Control increases with an activity-based cost system
a. The costing system based on activity is different from conventional cost
accounting systems.
b. Activity-based cost systems use more pooled costs to accumulate indirect costs
(manufacturing overhead). While most traditional cost systems bring together all
overhead costs, the activity-based costing system distinguishes three different
overhead categories: batch-related overhead, product-related overhead, whole-
company verhead.
c. Activity-based cost systems seek to rationalize the allocation of overhead for
products by identifying cost drivers. Driver fees are anything that has a causal
relationship to costs.
2. Better decision
Traditional cost systems tend to apply too much overhead to some products and too
little to others, because too little collection of costs is used. This leads to two types
of problems, both of which are experienced by AOE.
3. Increased cost management
Proponents argue that another advantage of activity-based costing is that it clearly
measures the results of managerial actions on overall profitability.
4. Control improvement with innovative performance methods
Modern approaches to production, such as lean manufacturing, differ significantly
from traditional mass production.
5. Throughput: a measure of the effectiveness of production
Throughput represents the number of good units produced in a certain period of
time. It consists of three factors, each of which can be controlled separately.
6. Quality control measures
Information about quality costs can help companies determine the effects of actions
taken to improve results and identify areas for further improvement.