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Unit 3: Production and Inventory Cycle, Unit 3 Summary 221141192 - Coggle…
Unit 3: Production and Inventory Cycle
3 components to production process:
Input (raw materials)
Production (manufacturing)
Output (finished goods)
3 main functions of the cycle:
Production planning and design
Start of production process
Pre-numbered CPO/IPO
Authorized by production planning department
Accepted by production manager, then creates CJC/IJC
Production processing
Receiving, processing, raw materials, and manufacturing finished goods
Inventory management
Updating of relevant ledger accounts by accounting department
Made up of 4 main controls:
Production entries supported by relevant documentation
Storage and dispatch of inventory
Maintenance of inventory master file
Physical and monitoring controls
Documents in the cycle:
Customer/inventory production order
Raw materials issue slip
Customer/inventory job card
Job transfer sheet
Inventory master file
Daily production report
Complete production report
Transfer to finished goods note
Picking slip and delivery notes
Inventory count sheet
Inventory adjustment form
Substantive testing
Audit procedures/substantive procedures
Primary risk: Overstatement, since inventory has a debit balance
Control objectives, Internal controls, and test of controls:
Control objectives: what the company wants to achieve with every transaction
Internal controls: activities implemented to ensure that desired objectives are achieved
Test of controls: testing whether the internal controls are working as designed
Weaknesses, risk, and recommendations:
Weakness:Poorly implemented internal controls
E.g. Issuing of raw materials without Issuing slip
Risk: what can go wrong as a result of a weakness
E.g. issuing incorrect, incomplete, or more material than needed to production
Recommendation:What must be done to eliminate weakness and risk
E.g. No material issued to production without an issue slip.
Unit 3 Summary
221141192