Please enable JavaScript.
Coggle requires JavaScript to display documents.
PRODUCTION AND INVENTORY CYCLE UNIT 3 3 Functions:, Dean Fensham -…
PRODUCTION AND INVENTORY CYCLE
UNIT 3
3 Functions:
Relevant documents
Inventory production order
:
Document for bulk production.
Raw material issues slip
:
Records raw material issued to production.
Customer job card/ Inventory job card:
Records machine- & human hours for specific customer/ bulk order.
Job transfer/ Inventory movement sheet
Document authorizing transfer of work in progress to next production stage.
Customer production order:
Document for specific order to customer specifications.
Inventory master files:
Records detail of all inventory movements of different inventory classes.
Daily production report:
Detail of each job in progress.
Completed production report:
Total costs of raw material time, quantity of goods and overheads allocated of completed jobs.
Transfer to finished goods note:
Records transfer of manufactured goods from production dept. to finished goods inventory.
Picking slip and delivery notes:
To select goods ordered from stores and ensures control of movements of goods once sold.
Inventory count sheet:
Used during inventory count.
Inventory adjustment form:
Sequenced documents used to record inventory adjustments.
Internal Controls and Objectives
Internal controls for Production and Inventory cycle:
Safeguarding:
Control objective: Completeness; Existence
Keep inventory in locked storeroom, limit access;
to authorized personnel;
Key control over doors gates;
Employ security guards and cameras.
Inventory susceptible to damage to be safeguarded from elements:
keep under shelter and insure adequately.
Issue of raw materials to production:
Control objective: Completeness; Validity and authorization.
RMI's made out for raw material to production:
occurs only after requisition is authorized by production manager or foreman;
Numerically accounted for and missing numbers followed up;
signed by storeman for authorization;
signed by production manager as proof of receipt of goods.
No changes allowed on issuing notes.
No stock leaves storeroom without delivery note.
Recording:
Control objective: Completeness; Accuracy
Continuous inventory records should be:
maintained by personnel independent from safeguarding function of inventory.
written up from GRN and DL or RMI's.
Regular inventory counts and comparison with inventory records:
follow up differences
adjust inventory records after proper authorization.
Obsolete or slow moving stock identified and systematically written off according to policy.
Controls that are not cycle specific:
a) Supervision and review
b) Segregation of duties
c) Rotation of duties
d) Personnel take leave regularly
e) Management control
f) Internal audit
g) Sufficient stationary control
h) Scrutinize all records and documents for extraordinary items
i) Test castings and calculations on all items, documents, and ledger accounts
1.
Production planning and -design
Planning and designs of items to be manufactured and controlled
Start of production process:
Authorization of pre-numbered customer/ inventory production order by production planning dept..
After formal authorization by production planning dept. the production processing dept./ factory manager signs as acceptance of document
Upon acceptance of CPO/IPO - customer/ inventory job card generated to capture costs of production
Costs include: raw materials used;
labour hours worked;
Machine hours worked.
As goods move through production, responsibility is delegated to authorized personnel to monitor and sign off on goods transferring to next stage (Job transfer/ inventory movement) sheet.
Daily production report produced and copies to be sent to production planning dept./ -manager.
2.
Production processing
Issue of raw materials to production process, movements of goods through production process and transfer of manufactured goods to finished goods.
Issue of Raw materials issue slip generated by production planning dept-/ factory manager.
Any raw material issues to be captured on CJC/IJC.
Raw materials issued listed on daily production report. Copy is sent to raw materials stores staff to compare with raw material inventory master file records of day.
During goods movement through production as WIP:
Labour- and machine hours to be captured on CJC/IJC.
End of day total hours on CJC/IJC reconciled with total hours worked.
Discrepancies investigated and corrected by production manager.
Shift-/ production manager responsible for inspection of each stage of production.
Signature authorisation.
Manufactured goods transferred to finished goods inventory:
Quality control inspection after completion of manufacturing process
Raw materials, labour- & machine hours + OH allocations listed on completed job card inspected and reconciled with completed production report
Before acceptance into finished goods inventory store (by inventory stores staff) production manager reconciles and authorizes any differences between completed job- and production cards.
Factory-/ production manager to authorize transfer of goods to inventory and acceptance is acknowledged by signing completed production report by finished goods inventory stores staff.
3.
A) Inventory management and B) -counts:
Receipt and recording of manufactured/ purchased goods + storage and maintenance of inventory records.
A)
Relevant documents/procedure used in
Production entries;
Storage and dispatch of manufact. inventory;
Maintenance of inventory master files;
Physical- & monitoring controls.
1.
Raw materials issue slip; CJC/IJC
Keep date and authorization of goods transfer between dept's until final transfer to finished goods inventory. Then record acknowledgement by issuing GRN.
Reconcile amounts from general ledger back to daily production report (WIP) and completed production report (transfer of goods to finished inventory).
2.
Items purchased accounted on receipt into raw materials store.
Raw materials leaving store - charge to production.
Account for cost of manufactured goods from WIP to finished goods.
When sold - cost of manufact. inventory transferred to COS, invoice customer, charge to accounts receivable/ receipt of cash.
Record inventory movements by keeping cards to bins/ shelves monitoring in and out movements.
Finished goods receipt leads to GRN updated with finished goods inventory record compared to physically received goods.
Physical safeguarding of inventory vital and perform frequent counts to agree physical quantities with recorded balances.
Discrepancies to be authorized by senior employee.
3.
Monitor finished goods inventory levels, validity/ existence and accuracy measurement regularly to ensure:
a) Prevent stock outs;
b) Monitor slow moving/ obsolete/ damaged stock for write off or selling at reduced prices;
c) Monitor supplier deliveries for quality, prices and lead times.
d) Monitor existence of inventory - where theft is risk
4.
Management implements variety of controls over inventory depending on various business specific factors:
a) Perpetual inventory:
Permits continuous inventory checks for quantity and validity/ existence.
Permits discrepancies to be discovered early on and rectified.
b) Issue of goods at selling price:
Goods sold to agents - sold at selling price in inventory control accounts.
c) Gross profit analysis:
Monitoring percentage of gross profit to sales. Compare trade account to previous period.
d) Physical control:
Few specified exits for goods movement.
Exits strictly controlled and goods to move with delivery note, sales invoice or inter-branch transfer.
e) Monitoring of inventory levels:
Monitor inventory levels to match sales demands, identify slow moving goods and prevent stock outs.
B)
Proper controls are vital to be implemented during
Planning stages for inventory count and
Physical inventory count, ensuring inventory does not get lost or stolen during count.
1.
a) Fix a date:
Inform employees well in advance of date of count and time frame.
b) Fixing responsibility:
Clearly define responsibility and all staff to be informed of authority and sections of counts.
c) Control over stationary:
Maintain control over medium of count and ensure reliability of method.
Use pre-numbered count sheets and record those issues.
Check sheets at end and check against prelisting.
d) Control over inventory movement:
Goods remain property of seller until delivery but unopen packages from suppliers with no invoice received may be omitted from inventory counts.
e) Cut off point established:
Designate exact point until goods may be received and included in inventory and sales made treated as reductions in relevant financial year.
f) Care taken to make sure correct cut-off obtained at date of count for purchases, sales and inter-branch.
g) Provide complete recording of information for adjustments.
Some business close their stores on day of count to suppliers and customers.
h) Instructions to staff doing the count:
Provide explicit explanation in writing providing:
overall inventory count plan;
preparation of inventory prior to count;
method of counting;
method of recording counts;
responsibility for issuing, collecting and controlling records;
addressee's specific task.
2.
Actual count of inventory done under authorized supervision and instruction followed.
Count non-inventoried goods twice.
Teams of counters to consist of two employees, one counting the inventory and the other noting it down on official counting sheets.
Counters should sign their counting devices and sheets identifying their functions.
After the count, all recording sheets/tags etc. should be collected and accounted for by the supervisors.
Appointed auditor should obtain copy of counting plan and procedure from client as well as instructions to staff. Auditor should be satisfied with procedure and planning.
Dean Fensham - Auditing 31 - Unit 3: Production and Inventory Cycle