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CHAPTER 7
THE CONVERSION CYCLE
REVIEW QUESTIONS
1. A company’s conversion cycle transforms (converts) input resources, such as raw
2. The batch processing system consists of four basic processes: plan and control
3. Continuous processing creates a homogeneous product such as cement through a
continuous series of standard procedures, while batch processing produces discrete
5. The primary determinant for materials requirements, the bill of materials, specifies
the types and quantities of the raw materials and subassemblies used in producing a
6. An objective of inventory control is to minimize total inventory cost while ensuring
that adequate inventories exist to meet current demand. Inventory models used to
achieve this objective help answer two fundamental questions:
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8. Materials requisitions, excess materials requisitions, materials returns, job tickets,
9. Probably the most important type of report is the variance report. This report
illustrates to management the actual cost versus standard costs and any deviations
10. The receipt by cost accounting of the last move ticket for a batch from the work
11. Inventory control, which maintains the records for the raw materials and finished
goods inventories, should be separate from both the raw materials storeroom and
12 .Transaction authorization: Work orders, move tickets, and materials requisitions.
Segregation of duties:
13. Computer-aided design (CAD) involves the use of computers to design products
14. If production problems are causing bottlenecks, then work-in-process (WIP)
inventory will tend to accumulate. If the wrong product mix is being produced, then
15. The goal of lean production is improved efficiency and effectiveness in every
16. Activities describe the work performed in a firm, while cost objects are the
reasons for performing activities.
17. Essential activities add value to the organization either through adding value to
18. “Islands of technology” describes an environment where modern automation
19. Computer-integrated manufacturing (CIM) is a completely automated
environment with the objective of eliminating non-value added activities. A CIM facility
20. A company’s value stream includes all the steps in the process that are essential
DISCUSSION QUESTIONS
1. The various work centers send cost accounting completed move tickets. Along with
standards provided by the standard cost file, move tickets enable cost accounting to update
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2.
1. The assumption that demand for the product is known with certainty is not
unreasonable for most firms. Some firms will have better estimates than others, but
overall projecting demand for a product is not unreasonable. Assuming that the
2. The lead time is known and constant. This assumption is not too unrealistic.
3. The assumption that the total cost of placing orders is inversely related to the
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4. The cost accountants need to keep the records for WIP inventory files. They also
need to track labor, material, and overhead variances, and provide management with these
5. By prenumbering source documents and referencing these in the WIP records, every
6. The general ledger department provides independent verification by reconciling WIP
7. The following features characterize the world-class company:
8. By replacing labor with automation, a firm can reduce waste, improve efficiency,
increase quality, and improve flexibility. Examples of automation include: Automated Storage
9. Students will present different answers to this question. For example: Second Skin
Swimwear in Boca Raton, Florida digitizes the image of the customer, which is then
displayed on the computer screen. The customer, with the aid of a salesperson, then tries
various swimsuits on the screen, making any desired changes. Different fabrics are also
10. Low priced, poor quality raw materials can end up costing the firm more money if
more scrap is produced due to difficulty of working with the raw material. Also, poor quality
11. The problem is that manufacturing performance is not given enough emphasis by
traditional cost accounting techniques, and traditional cost accounting techniques do not
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support the objectives of lean manufacturing firms. Firstly, traditional cost accounting
systems do not accurately trace costs to products and processes. This results in product
cost distortions, which can ultimately cause poor decisions regarding pricing, valuation, and
12. The ABC process model provides critical information about cost drivers and
performance measures. This information can be used to constantly analyze the relative
13. In the traditional manufacturing environment, direct labor is a much larger
14. The use of standard costs provides a type of access control. By specifying the
15. A Value Stream Map (VSM) is used to graphically represent a business processes to
identify aspects of it that are wasteful and should be removed. A VSM identifies all of the
actions required to complete processing on a product, along with key information about each
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16. ABC allows managers to assign costs to activities and products more accurately than
standard costing permits. Some advantages that this offers are:
17. ABC has been criticized for being too time consuming and complicated for practical
applications over a sustained period. The task of identifying activity costs and cost drivers
can be a significant undertaking that is not completed once and then forgotten. As products
18. Traditional accounting systems do not accurately trace costs to products and
processes. One consequence of new technologies is a changed relationship between direct
labor and overhead costs. In the traditional manufacturing environment, direct labor is a
much larger component of total manufacturing costs than in the CIM environment.
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19. Most organizations produce more than one product, but these often fall into natural
families. Product families share common processes from the point of placing the order to
20. MRP II evolved into large suites of software called enterprise resource planning
(ERP) systems. Similarities in functionality between ERP and MRP II systems are quite
A primary distinction, however, is that the ERP has evolved beyond the
manufacturing marketplace to become the system of choice among non-manufacturing firms
as well. On the other hand, cynics argue that changing the label from MRP II to ERP
enabled software vendors to sell MRP II packages to non-manufacturing companies. The
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