14. The Production Cycle

Question 1

Describe the production cycle

Tip: produktion/fremstilling

Answer 1

The production cycle involves activities that are associated with the manufacturing of a product.

Question 2

What is the main objective of the production cycle?

Tip: meets customer requirements and?

Answer 2

The objective is to manufacture a product that meets customer requirements, anticipates the demand for the product, all while minimizing the production costs.

Question 3

What does the product cycle consist of?

Tip: 1) product design, 2) planning and scheduling, 3) production operations, 4) cost accounting system.

Answer 3

The production cycles consist of

1. Product design
2. Planning and scheduling for efficient, source documents: master production schedule + production order + materials requisition. Lean or not
3. Production operations, actual manufacture of products
4. Cost accounting system

We will not go further into the first 3 steps.

Question 4

Explain 4) Cost accounting system

Tip: information, accurate cost data, collect and process information

Answer 4

Cost Accounting System can help organizations achieve their manufacturing goals by these three principal objectives:

1. Provide information for planning, controlling and evaluating the performance of production operations.
2. Provide accurate cost data about products for use in pricing and product mix decisions
3. Collect and process the information used to calculate the inventory and cost of goods sold values that appear in organization’s financials

Question 5

How can the organization meet this goal from the Cost Accounting System:
1) Provide information for planning, controlling and evaluating the performance of production operations.

Tip: real-time data

Answer 5

Accomplishing the first objective requires that an organization’s cost accounting system collects real-time data about the performance and production activities for management to make timely decisions.

Question 6

How can the organization meet these goal from the Cost Accounting System:

1. Provide accurate cost data about products for use in pricing and product mix decisions
2. Collect and process the information used to calculate the inventory and cost of goods sold values that appear in organization’s financials

Tip: classify and assign costs

Answer 6

Accomplishing the 2. and 3. Requires organizations to classify and assign costs. Types of costs that are collected and classified are:
¬ Raw materials usage data
¬ Direct labor costs
¬ Machinery and equipment usage
¬ Manufacturing overhead costs

Assigning the costs can be done several ways e.g.
¬ Job-order costing, cost for specific batch
¬ Process costing, cost to each production cycle and calculate average for all units
¬ Activity-based costing, tracing costs to the activity

Question 7

Should the accountant be involved in the production cycle and why?

Tip: product design

Answer 7

Accountants should participate in product design since 65-80% of product cost are determined at this stage of the production process.

Accountant’s analysis of cost behavior and variations in product design can prove invaluable to the organization in this stage of production.

Question 8

Should the accountant be involved in the planning and scheduling and why?

Tip: MRP-II or JIT

Answer 8

In the planning and scheduling stage, accountants can help a company choose whether MRP-II or JIT is more appropriate for planning and scheduling.

Question 9

What is the MRP-II system

Answer 9

MRP-II
An extension of materials requirements planning that seeks to balance existing production capacity and raw materials needs to meet forecasted sales demands. Also referred to as push manufacturing because goods are produced in expectation of customer demands.

Question 10

What is JIT system

Answer 10

JIT
Just in time system inventory, a system that minimizes or virtually eliminates inventories by purchasing and producing goods only in response to actual, rather than forecasted sales. Lean extends this

The accountant should verify that the AIS collects and reports costs in a manner consistent with the production planning techniques it has chosen to use

Question 11

So in short about the accountant

Tip: excellent insight and invaluable

Answer 11

The accountant should be integrally involved with the cost accounting system, whether it is a traditional cost accounting system or an activity-based cost accounting system. Accountants can provide excellent insight into the cost aspect of the production process, which is key to the profitability and success of the organization.

Question 12

Threats to production cycle

Answer 12

Poor product design, over and under produktion, theft etc.