Tài chính kế toán - The conversion cycle

The conversion cycleLearning objectivesTo learn what the conversion cycle business activities are.To learn how to flow chart the conversion cycle business activities.To understand the processing of conversion cycle transactions using a computer.To know the control practices and procedures required in the conversion cycle.key termsdirect labour costdirect material costjob order costingjust-in-time inventory systemmaterial requirements planningoverhead costprocess costingwork in processConversion cycle business activitiesTransactions in the conversion process:acquisition of materialsacquisition of labourtransfer of materials, labour and overheads into productiontransfer of finished goods to inventorysale of inventoryMajor groups in the conversion cycleInventoryPayrollCost accountingInventory Main activity is to keep records of inventory levels:raw materials finished goodsValuation methods used:periodic inventory methodperpetual inventory methodInventory processingPayroll systemRecords labour transactionsPayroll system interfaces with conversion cycle providing information on labour transactions Cost accountingRecords transactions of conversion cycle classifying three major elements:Direct material costsDirect labour costsOverhead costsThese are recorded in a ‘Work in process account’Non-accounting systems Systems necessary to the conversion cycle:Product designProduction planning and scheduling systemsMaterial requirements planningJust-in-time systemsComputer-aided manufacturingInternal control procedures for the conversion cycleMaterial requisitions properly authorisedApproved production schedulesFinished goods transferred to storeperson’s careInventory records checked for accuracyPhysically verify stocks to check for losses and accuracy of recordsInvestigate differences in physical and accounting records and take appropriate actionMonitor defective productionInvestigate customer complaints