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Production and Inventory Cycle - Coggle Diagram
Production and Inventory Cycle
Overview
Taking custody of inventory as well as the safekeeping thereof. e.g - the retailers buy finished goods from suppliers and sell them.
Recording of cost when dealing with a production or manufacturing environment. e.g - manufacture our own products and sell them
Three functions in the whole cycle
Production planning & design
- the design of tiems to be manufactured, the prodcution planning and control thereof
Production processing
- issue of raw materials to production process, movement of goods through production process and transfer of manufactured goods to finished goods.
Inventory management
- receipt and recording of manufacture/ purchased goods and storgae of inventory and maintenance of records
Documents in the whole cycle
Customer Production Order (CPO)
Inventory Production Order (IPO)
Raw materials issue slip
Inventory Job Card (IJC) / Customer Job Card (CJC)
Job transfer (Goods recieved note)
Inventory master files - raw mat, WIP, finished goods
Daily production report
Completed production report
Transfer to finished goods note
Picking slipand delivery note
Inventory count sheet
Inventory adjustment form
Example of weakness/ risk
Scenario - an organisation issues raw materials to the production process with a Raw Material Issue Note (RMI)
Weakness - the transfer of raw materials to production might not be valid as there is no RMI to prove that the transaction is valid
Risk - the organisation will be issuing more or less raw materials to production than actually needed, and there could be unauthorised issuing of raw materials that lead to unauthorised production and this affects the organisation negatively
Control Objectives & Internal Controls
Occurence/ validity
Authorisation
Completeness
Accuracy
Classification
Recording
Cut-off
Safeguarding (completeness/ existance) - inventory should be safeguarded against theft and damage
Issue of raw materials to production (Completeness/ Validity/ Authorisation - inventory only leaves the storeroom based on properly authorised documents
Recording (Completeness/ Accuracy) - all inventory is accurately recorded at the correct quantity and price
Substantive testing
Valuation - inventory should be stated at lower cost or NRV
Existence - inventory should exist at year end
Right & Obligations - inventory has valid rights till year end
Completeness - there is no unrecorded inventory at year end
Cut off - inventory transactions are recorded at the correct period
Accuracy - inventory are recorded accurately
Presentation & Disclosure - inventory is correctly classified and presented i.t.o of IFRS