Week 9 | Conversion Cycle

Question 1

What is the objective of the conversion cycle?

Answer 1

Main: Ensure that sufficient goods are manufactured in time to meet customer demand

1. Ensure that production activities and schedules are appropriately authorized and approval
2. To secure and appropriately use the inventory items including raw materials, work in progress and finished goods
3. To ensure that the production runs are accurately recorded, conducted, scheduled and costed

Question 2

How can MRP be used in real life?

Answer 2

MRP is a system for calculating the right materials and components needed to manufacture a product. It has 3 steps:
- Taking inventory of materials and components on hand
- identifying which additional ones are needed
- scheduling their production or purchase

Question 3

What are the stages in the conversion production

Answer 3

1. Product requirement
2. Plan production schedule
3. Produce the product
4. product costing

Question 4

What do each forecasting stages in the conversion production cycle do?

Answer 4

1. Product requirement:
   Each product should have 2 documents
   Bill of material:
   - Raw material needed for the product
   - Both type and quantity

Operation list:
- The steps to produce the product
- includes the labour and equipment requirements

2. Determine and schedule production requirements

Part 1: Sales forecast - (current finished goods) = goods to be produced

MRP:

Goods to be produced * bill of material = Total raw materials needed

Total raw materials needed - raw materials on hand = Raw materials to be ordered = purchase requisition

Part 2: Goods to be produced -> decide order of production = production schedule (planned production schedule)

Question 5

What are the risks inherent in the determine and schedule production requirements?

Answer 5

1. Is the forecast correct: Over or underestimate demand and therefore production
2. Miscalculate production requirements: Errors in bill of material or operations list
3. Raw materials/issues: not enough/too much
4. Inefficient use of resources

Question 6

When does the economic event in the conversion production cycle occur?

Answer 6

Stage 3: Production stage
1. Production
- continuous processing of homogenous products
- Batch production
- Custom, made to order production

2. Quality control
   if Acceptable quality becomes finished goods

Question 7

What is the final stage of the conversion production cycle?

Answer 7

Costing cycle:
data from costing comes from production
- What raw materials and labour are used
- How much of each was used

the costing information would then feed into the general ledger and financial reporting cycle

Risk:
- Do we have data to cost correctly
- Is calculation being performed correctly
- Is the calculation faithful
- Are all costs recorded

Question 8

What are relevant KPIs of the conversion production cycle?

Answer 8

Ensure all production activities and schedule are appropriately authorised and approved:

1. Number of production sequence error detected
2. Number of adjustments made to production schedule
3. Cost of inspection and testing activities

Secure and appropriately used inventory items including raw materials, work in progress and finished goods
1. Inventory costs per product
2. Number of raw material stock-outs

Ensure all production runs are recorded, scheduled, conducted and costed
1. Production cost variances
2. Number of quality complaints from customers
3. Number of quality complaints from production personnel
4. Number of quality complaints from sales personnel (requester)

Question 9

In real life, what are some conversion cycle decisions?

Answer 9

Product level:
- Material requirements
- Labour requirements
- Equipment requirements

Production level:
- Determining type and quantity of product
- Scheduling production to align with demand