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Production and Inventory cycle, This consists of the receipt and recording…
Production and Inventory cycle
Production planning and design
This function consists of the planning and designing of the products that needs to manufactured.
Documents
Customer production order (CPO) or an Inventory production order (IPO)
.2. Job card either customer or inventory.
Capturing all cost involved. Such as raw materials, direct hours worked, machine hours. each person responsible for section signs off before next stage.
Daily production report
Distributed to planning department for inspection and monitoring which jobs is in production and which is complete. management should review to take note of changes in materials, hours work and queried and corrected.
Issued when re ordering level is reached. Formally authorised by planning department by means of signature and separation of duties, before the factory manager accepts.
Production processing
This consists of the issuing of materials; movement of goods through the different production stages; transfer of goods to inventory.
Documents
Raw Material Issue slip
Prepared by production planning department, or department or factory manager.
Customer or Inventory job card.
Issues to production should be accounted for, as allocated by particular CJC or IJC. This should also show the amount of time spent in each production stage. Use as clock in and clock out. If more hours was clocked it should be followed up by the production manager. Signature of Foreman/manager should indicate that inspections was done before every stage in production. at end of day the job card should show raw materials, labour, machine hours and overheads- Ensuring correctness and completeness is the production manager.
3.Daily production report
All raw materials should be on the production report. it should be sent to raw material store staff to compare to the master file. The details and information on the job card should be reflected on the production report when compared. any changes in costs and unexpected items should be authorized by the production manager.
Transfer of goods is authorised by signature of production manager to inventory. the inventory stores staff acknowledge receipt of goods by signing the production report.
Inventory Management
The accounting department is to ensure that all relevant ledgers is updated. The accounting department should also monitor the production records to ensure that it is complete and accurate.
Recording include: direct material costs; direct payroll costs; overhead allocations; transfer of accumulating costs between different stages and the transfer of final cost to the inventory as cost of goods.
Documents used in capturing and comparing by accounting department
CJC/ IJC
Goods transfer note
Acknowledgement of finished goods to inventory
Daily production report
Completed production report
Raw material issue slip
Inventory counts
Planning
Fixing the date
All involved should be notified in advance.
Cut off point
a time should be decided upon where after goods received and sales made is to included or excluded from the count.
Control over inventory movement
Packages from suppliers, that have no invoice, can be omitted from count. stock already invoiced for customers can be regarded as sales and be omitted from count.
Careful around planning
care should be taken to insure the cut off is inclusive of goods either between branches and in transit.
Control over stationary
the medium used to record the count should be the same, all the time to ensure accountability
Thorough recording
It is required to make adjustments, this can translate to arrangements with suppliers and customers to delay deliveries and collections.
fixing responsibility
Defined work to be done; divide building into sections, assign supervisors
Clear instructions
In writing to counters, overall plan, prep of inventory before hand, method of counting, method of recording counts, responsibility for issuing, collecting and controlling records, and specific tasks for eash.
The count
Should be done under supervision, checking twice. two teams that count.
teams should consist of two employees, one counting and the other recording.
All counters should sign the initial count sheets, stating their function.
at end of count all sheets or tags, should be accounted for to each supervisor and then to the head of the count.
The auditor should obtain a copy of the plan. the auditor should scrutinize the plan and clear up any uncertainties. if the plan is finalised the auditor would ascertain that it is followed.
Controls
Issue of Raw materials
Issue notes are made out when issuing raw material for production
Only after requisition, authorised by production manager, Numerically accounted for and missing numbers are followed up, signed by the storeman, signed by production manager.
Test: Enquire with the various personnel about the issuing policies. inspect the supporting documentation, inspect for things like numerically numbered notes and approval signatures.
no changes allowed on issue notes
Test: inspect notes for changes and follow up any changes that might have taken place.
No changes are allowed on issue notes and no stock leaves for customers without a delivery note
Test: Observe the procedures that is followed when issuing stock. Do this at the gate, The store, Follow the path of the inventory. ensure that all inventory leaves with a delivery note.
Recording
Continuous inventory records
Written up from good received notes and delivery notes or issue notes. Maintained by personnel independent of safeguarding function personnel
Test: observe procedures in terms of maintaining the inventory records. select sample of GRN and DN and follow path through inventory records. Agree that the amount , quantity and details are correct.
Regular inventory count
adjustment authorised by management only
Test: attend inventory count, observe procedures followed, preform test counts and compare with client counts.
follow up differences
Obsolete/slow moving stock is identified and systematically written off., dictated by company policy
Test: Inspect write off of inventory. Ensure that inventory identified as obsolete is obsolete.
Safeguarding
Safeguarded against the elements
Under shelter; fire extinguishers
Test: observe and enquire whether inventory is safeguarded against the elements.
Inventory should be locked up.
Access control; cameras; security
Test: Confirm by enquiring and observation that inventory is kept as required.
Sufficiently insured
Test: Inspect the insurance contracts to ensure that the inventory is sufficiently insured
Substantive testing
There are standard procedures that can be done in every business cycle.
Assertations
Rights and Obligations
Completeness
Inspect sequence tests and exception reports of unmatched pre numbered raw material slips.
Inspect whether the total cost of material issued match the requisition note.inspect trannsfers from WIP to finished goods ensuring the accumulated costs have been transferred correctly.
Accuracy
Recalculate the overhead allocations and enquire about the basis of allocation. Inspect WIP account for jobs written off and the related authorisation.
Existence
observe the operation of security checkpoints in the warehouse.
Valuation
Presentation and disclosure
Inspect financial statements to ensure that amounts are classified and disclosed correctly in terms of IFRS. inspect whether the financial statements notes reflect the rights and obligations with the enitity with regards to the assets mortgaged, pledged or leases .
Cut-off
Select a sample of GRN, DN and completed production reports pre and post year end and follow the documentation through the inventory master file and general ledger to ensure everything is recorded in the correct accounting period.
This consists of the receipt and recording of goods manufactured; The storage and maintenance of inventory.
Any out of line charges should be inquired about by management in applicable departments.
Completeness; Existence. Inventory should be safeguarded against theft and damage
Completeness, validity. Inventory only leaves with the proper authorisation documents
Completeness, accuracy. all inventory is accurately recorded at the correct quantity and prices
Compiled from Lesson 1-6, annexures, and online material of unit 3. (2023) University of Johannesburg.