Page 334 - Accounting Information Systems

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chapter

The Conversion Cycle

company’s conversion cycle transforms (converts)
input resources, such as raw materials, labor, and
A overhead, into finished products or services for
sale. The conversion cycle exists conceptually in all organiza-
tions, including those in service and retail industries. It is most
formal and apparent, however, in manufacturing firms, which
is the focus of this chapter. We begin with a review of the tra-
ditional batch production model, which consists of four basic
processes: (1) plan and control production, (2) perform pro-
duction operations, (3) maintain inventory control, and (4)
perform cost accounting. The discussion focuses on the activ-
ities, documents, and controls pertaining to these traditional
processes. The chapter then examines manufacturing tech- Learning Objectives
niques and technologies in world-class companies. Many
firms pursuing world-class status follow a philosophy of lean After studying this chapter, you should:
manufacturing. This approach evolved from the Toyota Understand the basic elements and
Production System (TPS). The goal of lean manufacturing is procedures encompassing a tradi-
to improve efficiency and effectiveness in product design, tional production process.
supplier interaction, factory operations, employee manage- Understand the data flows and pro-
ment, and customer relations. Key to successful lean manu- cedures in a traditional cost
facturing is achieving manufacturing flexibility, which
accounting system.
involves the physical organization of production facilities
Be familiar with the accounting
and the employment of automated technologies, including
controls found in a traditional
computer numerical controlled (CNC) machines, computer-
environment.
integrated manufacturing (CIM), automated storage and re-
trieval systems (AS/RS), robotics, computer-aided design Understand the principles, operating
(CAD), and computer-aided manufacturing (CAM). features, and technologies that char-
The chapter then examines problems associated with apply- acterize lean manufacturing.
ing standard cost accounting techniques in a highly automated Understand the shortcomings of tra-
environment. The key features of two alternative accounting ditional accounting methods in a
models are discussed: (1) activity-based costing (ABC) and world-class environment.
(2) value stream accounting. The chapter concludes with a dis- Be familiar with the key features of
cussion of the information systems commonly associated with
activity-based costing and value
lean manufacturing and world-class companies. Materials stream accounting.
requirements planning (MRP) systems are used to determine
Be familiar with the information sys-
how much raw materials are required to fulfill production
tems commonly associated with lean
orders. Manufacturing resources planning (MRP II) evolved
manufacturing and world-class
from MRP to integrate additional functionality into the manu-
companies.
facturing process, including sales, marketing, and accounting.
Enterprise resource planning (ERP) systems take MRP II a
step further by integrating all aspects of the business into a set
of core applications that use a common database.