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Production and Inventory Cycle - Coggle Diagram
Production and Inventory Cycle
About
The
production and inventory
cycle is
primarily concerned with mainly achieving
the following two objectives which is:
Taking
custody of inventory
as well as the
safekeeping
thereof
Retailers –
buy finished products
from suppliers and sell them.
The
recording of cost when dealing with a production or manufacturing environment
. (In this lecture we focus mainly on this objective).
M
anufacture our own products
and sell them.
Characteristics of the cycle
It is an internal cycle (unlike the others)
Why?
We sell the finished goods
through the revenue and receipts cycle
We
produce the goods internally
in our organisation
We buy the products or raw materials
through the purchases and payments cycle
Diverse and different from one company
to the next:
Inventory and the cycle will
differ from one organisation to the next
depending on the type of goods that you sell.
Heart of the business:
Inventory will
form the center of the business
, as we will not be able to make money without it. If we lose any of the inventory it will have a serious affect on the going concern of the company.
Main components of the manufacturing cycle
Inputs
-
Production
-
Process
-
Outputs
In production
one wants to ensure that
we
produce goods with the minimum amount of input and maximum output
. This will reduce the cost per unit and the organisation can make a better profit from the goods
Always ensure that the goods we produce
meet the needs of the users
and that
there is an active market for the goods
.
Three functions in the cycle
Production processing
Movement of goods through production process and
Transfer of manufactured goods to finished goods
Issue of raw materials to production process
Inventory management:
Receipt and recording
of manufactured/purchased goods; and
Storage of inventory
and
maintenance of records
Production planning and design:
The
design of items to be manufactured
, the production planning and control thereof.
1. Production planning and design
Once the
CPO or IPO is accepted
, a
Customer Job Card
(CJC) or
Inventory Job Card
(IJC) is
generated to capture all production costs
.
Raw materials used
,
direct hours worked
by production staff, and
machine hours
are recorded on the job card.
Each person responsible for a specific part of the production process
should sign off on the document evidencing goods produced are transferred to the next stage
.
Production
planning and design
is the
start of the production process.
The production planning department
authorizes a pre-numbered Customer Production Order
(CPO) or an
Inventory Production Order
(IPO) based on established trends for the
re-order level
of finished goods inventory items or
anticipated future demand
.
The
Production Order
must
be authorized by the production planning department
before acceptance by the production processing department or factory manager.
A
daily production report
of all jobs in process should be
produced and distributed to the production planning department
and the production or factory manager
to monitor progress.
Management should
review the daily production report
and
bring to light any unusual charges allocated for raw material, labor, and overheads
, which should then be queried and rectified where necessary.
2. Production processing
Movement of goods through production process:
Machine/Man Time on each process should be recorded on Customer Job Card/Inventory Job Card:
Time recorded at end of day should be reconciled to the total hours worked by production staff (all hours recorded versus hours on clock cards)
Production manager to follow-up discrepancies.
Writing/Clocking in-out/Electronic
The shift foreman should authorise goods before moving to next stage
Transfer of manufactured goods to finished goods:
Variances/overruns/transfer to finished goods should be authorised by the production manager
Raw material, man/machine hours, overheads on Customer Job Card should be inspected and compared to the completed production report.
Receipt should be acknowledged by the finished goods store on Goods Transferred Note (GTN), (Signature).
Quality control inspection of all goods
Issue of raw materials to production
Accounted for on Customer Job Card /Inventory Job Card
Accounted for on daily production report
Pre-numbered raw material issue slip is issued by the production department or factory manager (manual/electronic)
Copy should be sent to Raw material store to compare with raw material master file
3. Inventory management
. Receipt and recording of manufactured/ purchased goods
All entries must be supported by documents – CJC;
There should be a goods transfer note (GTN) for transfer to final goods;
Accounting/costing department to monitor accurate recording of:
Overhead allocation
Transfer of cost between production stages
Direct payroll
Transfer of final cost to finished goods inventory
Direct material/ consumables
G/L for WIP should agree to daily production report;
Ledger accounts automatically be updated.
G/L for FG should agree to completed production report;