Chapter 7the Conversion Cycle Summary
Chapter 7the Conversion Cycle Summary
Chapter 7the Conversion Cycle Summary
INVENTORY CONTROL
When do we purchase
Cost Accounting
Activities
Cost accounting
activities of the
conversion cycle
record the financial effects of the physical events that are occurring
in the production process.
Internal Controls
Transaction authorizations
o work orders – reflect a legitimate need based on sales
forecast and the finished goods on hand
o move tickets – signatures from each work station authorize
the movement of the batch through the work centers
o materials requisitions – authorize the warehouse to
release materials to the work centers
Segregation of duties
o production planning and control department is separate
from the work centers
o inventory control is separate from materials storeroom and
finished goods warehouse
o cost accounting function accounts for WIP and should be
separate from the work centers in the production process
Supervision
o work center supervisors oversee the usage of raw materials
to ensure that all released materials are used in
production and waste is minimized
o employee time cards and job tickets are checked for
accuracy
Access control
o direct access to assets
controlled access to storerooms, production work
centers, and finished goods warehouses
quantities in excess of standard amounts require
approval
o indirect access to assets
controlled use of materials requisitions, excess
materials requisitions, and employee time cards
Independent verification
o cost accounting reconciles material usage (material
requisitions) and labor usage (job tickets) with standards
variances are investigated
o GL dept. verifies movement from WIP to FG by reconciling
journal vouchers from cost accounting and inventory
subsidiary ledgers from inventory control
o internal and external auditors periodically verify the raw
materials and FGs inventories through a physical count
assumes that activities cause costs and that products (and other
cost objects) create a demand for activities