Page 368 - Accounting Information Systems

C H A P TER 7 The Conversion Cycle 339

a. Cutting—Boards are selected from inventory and f. Packing—Finished cutting boards are placed in
are cut to the required width and length. Imperfec- boxes of 12. The boxes are sealed, addressed, and
tions in boards (such as knots or cracks) are identi- sent to one of the kitchen stores.
fied and removed.
b. Assembly—Cut wooden pieces are laid out on clamps, Required
a layer of glue is applied to each piece, and the glued
pieces are clamped together until the glue sets. What do you suppose are components of overhead for
this company? Determine a logical cost driver for each
c. Shaping—Once the glue has set, the boards are sent
to the shaping process, where they are cut into process.
unique shapes.
8. LEAN MANUFACTURING
d. Sanding—After being shaped, the cutting boards
must be sanded smooth. PRINCIPLES
e. Finishing—Sanded cutting boards receive a coat of Write an essay outlining the key principles of lean
mineral oil to help preserve the wood. manufacturing.

Internal Control Cases

1. Nautilus Water Pumps, Inc.— the responsibility of the work center. At the work cen-
Internal Controls Assessment ter, the supervisor in charge prepares work orders, move
tickets, and materials requisitions. These documents are
(Prepared by Scott Pasquale and Kyle Smith, Lehigh
sent to the cost accounting department and are also used
University)
to create an open work order file. The work center also
Nautilus Water Pumps, Inc., manufactures automotive
retains copies of these documents so they can be used
water pumps. Since 1988 it has supplied the Big Three
to initiate production activities. Under the current sys-
(Ford Motor Company, General Motors, and Chrysler)
tem, once production is initiated, any excess material
North American auto manufacturers. Nautilus has
is immediately scrapped. The work center also pre-
recently broken into the American-made Japanese car
pares the necessary timekeeping documents (payroll
market. The company now supplies Toyota, Nissan,
time card and job tickets) and sends this information to
and Honda with automotive water pumps for their as-
the cost accounting department as well. Upon comple-
sembly operations in North America.
tion of the production cycle, the production schedule
andmovetickets areused toclose theopenworkorder
Conversion Cycle file, while one copy of the work order is sent to the fin-
At the start of the year each automobile manufacturer ished goods warehouse and another is sent to inventory
provides Nautilus with an order that is based on budg- control.
eted sales predictions. However, this order is guaranteed At the start of the production phase, a copy of the
for only the first month; after that each automobile man- materials requisition is sent to storekeeping so that the
ufacturer can revise orders on a monthly basis. Nauti- necessary raw materials can be issued to the work cen-
lus’s current system requires orders for raw material to ter. A copy of the materials requisition is kept on file in
be placed with suppliers on a quarterly basis. Although storekeeping.
the order provides a general idea of what is to be Inventory control is involved in the batch production
expected, orders from the automobile manufacturers can process throughout the entire operation. It releases the
increase or decrease dramatically after the initial month. inventory status document to production, planning, and
Under the current batch production process in the control so that materials and operations requirements
conversion cycle, the auto manufacturer sends the blan- can be determined. A copy of the materials requisition
ket order to the Materials and Operations Requirements document is received from storekeeping so that inven-
Department. In this phase production documents (bills tory files can be updated. Once files are updated, the
of materials, route sheets) are created and combined materials requisition is sent to cost accounting, while the
with inventory status reports from inventory control and updated files are also used to prepare a journal voucher
the required engineering specifications from the engi- that is sent to the general ledger department. A copy of
neering department to create a purchase requisition. the materials requisition, purchase requisition, and work
Currently, the production-scheduling phase falls under order documents are kept on file in inventory control.