Major Information Flows in the Production Process

1. Major Information Flows in the Production Process By: Jennifer Ruiz de Castilla Manuel Flores Robert Ordóñez Jeremiah Henry

2. Introduction • The Production Process is a recurring set of effective operations linked to manufacturing and production • This process allocates costs to produce profitable products • The controls will be examined at the end of our presentation.

3. Acquisitions/ Payment Process Sales/ Collections Process Planning Control Process Production Process CostStandards SalesOrder ProductionOrder StandardCosts PurchaseOrder Finished Goods Inventory Management Raw Materials Inventory Management Production Management ReceivingReport RawMaterials Inventory Work In Process Inventory FinishedGoodsInventory Cost of GoodsSold CostAccounting Completion of Production VendorInvoice Time Card /Labor Ticket Raw Material Inventory Status Report Cost Activity or Standard Cost Variances Report Work In Process Inventory Status Report Finished Goods Inventory Status Report

4. Symbols Magnetic Disk Document Computer Processing Input/Output

5. Definitions • Document: a document or report may be prepared by hand or printed by a computer (Steinbart, 72). • Magnetic Disk: data stored permanently on a magnetic disk; used for master files and databases (Steinbart, 73). • Computer Processing: a computer performed processing function; usually results in a change in data or information (Steingbart, 72). • Input/Output: any input or output function on a program flowchart. Also, used to represent accounting journals and ledgers in a document flowchart (Steinbart, 72).

6. Where Do We Begin? Standard Costs Cost Standards Cost Accounting Standard Cost Variances Report We begin in the Planning Control Process department where we establish our cost standards or our budget. Our current cost standards document is entered into the Standard Costs Master File. Here it can be compared to the previous period’s budget stored in the database and management can use this tool to help become more efficient. The Standard Costs Master File is then sent to the Accounting Department to be processed and verified in order to update the Standard Cost Variance Report. Finally, an updated and current Standard Cost Variance Report is produced.

7. Moving Into Production Production Order Sales Order Production Management When a customer makes an order, whether at a store, by mail, by phone, or through a website, their order data gets recorded onto a Sales Order Document which contains information about the item numbers, quantities, prices, and other terms of sale. This document is generated in the Sales/Collections Department. The Sales Order document is then sent to the Production Dept. where a Production Order is made. The production order document authorizes the manufacture of a specified quantity of a particular product. Management must process the production order into the WIP Inventory Master File to see if the order can be fulfilled with what is available on hand. Otherwise, a back order, stating insufficient inventory, will have to be created. Finally, the WIP Inventory Status Report is also updated. WIP Inventory WIP Inventory Status Report

8. What’s Needed? Raw Materials Inventory Raw Materials Inventory Status Report Purchase Order Raw Materials Inventory Management The Raw Materials Inventory Master File is inspected to acquire the amount of available materials on hand. After processing the database, Management determines what materials are needed to produce the final product and prepares the Purchase Order. This document requests a supplier to sell and deliver specified products at designated prices. It is also a promise to pay and becomes a contract once the supplier accepts it. The Raw Materials Inventory Status Report is also updated based on the updated database of the master file. When raw materials get sent to production, this will trigger a debit to work in process.

9. Receiving Materials The Purchase Order gets sent out to the vendor and is returned with the raw materials ordered and the vendor invoice. At this time the receiving report is also made to record all that was received. It can be verified to see if anything is missing. The Receiving Report and Vendor Invoice both update the Raw Materials Inventory Master File. Raw Materials Inventory will be debited and the Vendor Invoice will credit Accounts Payable. Also, once the Master File is updated, Management must once again process the database to verify that everything is correct and in agreement with the original purchase order. And finally, once again, the status report is updated. Purchase Order Raw Materials Inventory Management Receiving Report Raw Materials Inventory Vendor Invoice Raw Materials Inventory Status Report

10. Time Accountability Time Card/ Labor Ticket Cost Accounting Cost Activity Report The Accounting Department compares and verifies that the Receiving Report and Vendor Invoice match with the original Purchase Order. This allows them to authorize the Work In Process (WIP) for the product. Time and labor are accounted for with each employee’s time card/labor ticket. The Cost Activity Report is updated with the activities performed by the Accounting Department.

11. Time to Complete Production Cost Accounting WIP Inventory WIP Inventory Status Report Completion of Production Now that the Accounting Dept. has given consent, by updating the WIP Inventory database, the WIP Inventory can be completed in production. In other words, the completion of production process is authorized by the updated database of the WIP Inventory Master File. The WIP report is updated as WIP Inventory is moved through completion of production which transfers to finished goods inventory.

12. Finished Goods Production Order Finished Goods Inventory Management The Completion of Production process updates the Finished Goods Inventory Master File. The updated Master File allows for the Status Report to be updated and current. Finished Goods Inventory Management will also process the database of the Master File to verify that the final product matches the original production order. Finished Goods Inventory Completion of Production Finished Goods Inventory Status Report

13. Finally… WIP Inventory Finished Goods Inventory Cost of Goods Sold Completion Of Production As the product is completed, it can now be shipped out to the customer. The completion of the product thus triggers a debit to Finished Goods and a credit to Work In Process.

14. Control Objectives • Product Design • Produces products that are profitable and can be changed if necessary • Poor design can be costly throughout the production process • Planning and Scheduling • Management must control manufacturing with approved production orders. • Budgets must be followed and implemented during production

15. Control Objectives • Production Operations • Work in process is controlled by documentation of raw material used • Disaster recovery plans are produced by vendors in order to minimize losses during a disaster • Cost Accounting • Physical counts reconcile actual inventory against system counts

16. Cost Objectives • General Threats • Periodic reports on performance control costs • Behavior can be changed if costs are not being controlled by management

17. Thank You!!! (Applause Please)