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Production and Inventory Cycle - Coggle Diagram
Production and Inventory Cycle
This cycle is primarily concerned with mainly achieving the following two objectives which are:
Taking custody of inventory as well as the safekeeping thereof
The recording of cost when dealing with a production or manufacturing environment
Businesses inventory is the most important part of the organisation
The entire organisation is always shaped around the inventory in which the business deals
Three Functions
Production processing
movement of goods through production process
transfer of manufactured goods to finished goods
issue of raw materials to production process
Inventory management
receipt and recording of manufactured/purchased goods
storage of inventory and maintenance of records
Production planning and design
control
production planning
the design of items to be manufactured
Authorisation by the production planning department
Pre numbered customer production order(CPO)
Factory manager who has to sign the document as proof of approval.
Formally authorised by the production planning department before acceptance by the production processing department
Inventory production order(IPO)
Once the production manager or factory manager has accepted the CPO or IPO, a customer job card (CJC), or inventory job card (IJC) would be generated by the production department to capture all the costs involved in the production of the items such as
Direct hours worked by production staff
Machine Hours
Raw Materials used
Production Processing
production planning department
production department or factory manager
Recording Raw Materials Issued
List raw materials on daily production report
Send a copy to raw materials stores staff for inventory comparison
Raw Materials Issue
Prepared by production planning, production department, or factory manager.
All issues to production must be allocated to specific job cards (CJC or IJC)
Pre-numbered RMI is a request for raw materials in a production run
Work in Progress (WIP) Monitoring
Reconcile total time recorded with total hours worked by production staff daily.
Production manager corrects discrepancies; queries excessive recorded hours.
Capture time spent on each production stage on job cards.
Transfer to Finished Goods Inventory
Inspect raw materials, labor, machine hours, and overhead allocations on completed job card.
Verify against details on the completed production report.
Production manager authorizes any differences or variances from standard costs.
Authorization for goods transfer to finished inventory is done by the factory/production manager's signature.
Finished goods inventory stores staff acknowledge goods acceptance by signing the completed production report.
Quality Check and Authorization:
Shift foreman or production manager inspects each production stage completion.
Authorization via signature on the job card.
Quality control inspection post-production to identify defects before transferring to finished goods store.
Inventory Management
an overhead allocation for each job or production run, based on labour hours or machine hours worked, depending on the nature of the production process and practices of the entity in prior years
the transfer of accumulating costs between production stages or departments in work in progress
direct payroll costs based on hours worked, allocated to the relevant job or production run
the transfer of the final cost of the finished goods manufactured to finished goods inventory
direct material costs of raw materials and consumables to work in progress
the relevant ledger accounts must be updated as cost of work in progress and completed manufactured good s are recorded in the manufacturing process
The inventory management system is made up of four main controls
Storage and dispatch of manufactured inventory
Maintenance of inventory master files
Production entries must be supported by the relevant documents
Physical and monitoring controls
Internal Control and Control Objectives
Internal controls refer to the control activities that the organisation should implement to ensure they achieve the desired objectives
Control Objectives refer to certain objectives that the organisation wants to achieve with regards to every transaction