Page 46 - Accounting Information Systems

C H A P TER 1 The Information System: An Accountant’s Perspective 17

the study of information systems, the accounting and information technology (IT) functions are given
separate and more detailed treatment.
Materials Management
The objective of materials management is to plan and control the materials inventory of the company. A
manufacturing firm must have sufficient inventories on hand to meet its production needs and yet avoid
excessive inventory levels. Every dollar invested in inventory is a dollar that is not earning a return. Fur-
thermore, idle inventory can become obsolete, lost, or stolen. Ideally, a firm would coordinate inventory
arrivals from suppliers such that they move directly into the production process. As a practical matter,
however, most organizations maintain safety stocks to carry them through the lead time between placing
the order for inventory and its arrival. We see from Figure 1-8 that materials management has three sub-
functions:
1. Purchasing is responsible for ordering inventory from vendors when inventory levels fall to their
reorder points. The nature of this task varies among organizations. In some cases, purchasing is no
more than sending a purchase order to a designated vendor. In other cases, this task involves solicit-
ing bids from a number of competing vendors. The nature of the business and the type of inventory
determine the extent of the purchasing function.
2. Receiving is the task of accepting the inventory previously ordered by purchasing. Receiving activ-
ities include counting and checking the physical condition of these items. This is an organization’s
first, and perhaps only, opportunity to detect incomplete deliveries and damaged merchandise before
they move into the production process.
3. Stores takes physical custody of the inventory received and releases these resources into the produc-
tion process as needed.
Production
Production activities occur in the conversion cycle in which raw materials, labor, and plant assets are used
to create finished products. The specific activities are determined by the nature of the products being
manufactured. In general they fall into two broad classes: (1) primary manufacturing activities and
(2) production support activities. Primary manufacturing activities shape and assemble raw materials into
finished products. Production support activities ensure that primary manufacturing activities operate
efficiently and effectively. These include, but are not limited to, the following types of activities:
Production planning involves scheduling the flow of materials, labor, and machinery to efficiently
meet production needs. This requires information about the status of sales orders, raw materials inven-
tory, finished goods inventory, and machine and labor availability.
Quality control monitors the manufacturing process at various points to ensure that the finished
products meet the firm’s quality standards. Effective quality control detects problems early to facilitate
corrective action. Failure to do so may result in excessive waste of materials and labor.

Maintenance keeps the firm’s machinery and other manufacturing facilities in running order.
The manufacturing process relies on its plant and equipment and cannot tolerate breakdowns
during peak production periods. Therefore, the key to maintenance is prevention—the scheduled
removal of equipment from operations for cleaning, servicing, and repairs. Many manufacturers
have elaborate preventive maintenance programs. To plan and coordinate these activities, maintenance
engineers need extensive information about the history of equipment usage and future scheduled
production.

Marketing
The marketplace needs to know about, and have access to, a firm’s products. The marketing function
deals with the strategic problems of product promotion, advertising, and market research. On an opera-
tional level, marketing performs such daily activities as sales order entry.