Medrana, Meilin Denise D.

AIS2B
FORMATIVE 3

1. What are the basic business activities and data processing operations that are
performed in the production cycle?

Looking back at the past lectures of the accounting information system, we have learned
that there are is a business cycle that is grouped into five major transaction cycles. Focusing on
the production cycle, it is where the raw materials and transformed into finished goods. There
are four (4) basic activities in the production cycle namely the:
 Product Design
 Planning and Scheduling
 Production Operations
 Cost Accounting
     
           The objective of the first activity (1) which is the product design is to create and design a
product that aims for the taste and preference of the consumers. Quality, longevity, and
functionality of certain products are all needed while maintaining and keeping an eye on
production costs. The product design creates two main documents mainly the bill of materials
and the operations list. As accounting information technologists, we are the ones who will
provide information about the machines being used as well the financial information of the
company such as production costs. The second activity (2) which is the planning and scheduling
is used to meet certain goals and address concerns from what goes inside and outside of the
company. This can be implemented in two ways. Manufacturing resource planning (MRP-II) and
Just-in-Time (JIT) manufacturing systems. In line with the AIS course, we are the ones to
ensure and report costs, plan and organize procedures on how to set certain rules and
regulations to production flow. The third activity (3) is the production operations. This is where
the actual production process takes place. In this process, a company needs its inventory such
as raw materials, labor hours and workers, direct and indirect labor (manufacturing overhead),
etc. The final step or fourth activity (4) is the cost accounting. Cost accounting aims to provide
information for planning, controlling, and evaluating the performance of the production. This is
where a company’s cost accountant calculates its inventory and cost of goods sold. 

2. What decisions need to be made in the production cycle, and what information is
needed to make these decisions?

Inside any business cycle, specifically in the production cycle, managers need to step up
and take action for the continuous progress of the firm. The operations manager is required to
make series of decisions and other actions to improve production labor. It starts with
brainstorming, planning, organizing, and controlling activities to convert raw materials into
finished goods. Types of decisions are strategic decisions, operating decisions and control
decisions in order to create an efficient and effective business. In line with strategic decisions,
the main area of involvement includes the how to develop long range plans and production
 capacity. On the other hand, operating decisions focuses on information about how to manage
the manufactured goods and make decisions in which implies on what to produce and when to
produce each product at a time. Lastly, controlling decisions focuses on plans for the use of
effective and efficient use of information amongst human resources department.

3. How can the company’s cost accounting system help in achieving the entity’s
objectives?

Inside every manufacturing company, cost accounting and cost accountants are an
essential key element to every successful business and are needed for the production process
of an entity. The first objective of cost accounting system is to provide information for planning,
controlling, and evaluating the performance of production operations. Moreover, cost accounting
also aims to provide accurate cost data about products for use in pricing and mix decisions and
lastly, to collect and process cost information used to calculate the inventory and cost of goods
sold values for the financial statements. Inside cost accounting, there are two types of cost
accounting systems namely the job order costing and process costing. Job order costing is the
way of assigning costs to a specific activity or product while on the other hand, process costing
assign costs to each processor work center in the production cycle. It is used when similar
goods or services are produced in mass quantities and discrete units cannot be easily identified.

4. What are the major threats in the production cycle and the controls that can mitigate
those threats?

Inside the production cycle, accountants need to create a well-designed plan so that
goals are met and possible problems can be controlled. This process can create unbiased
statements, valid recorded transactions, safeguarded assets that are away from theft, as well an
efficient and effective performance of the business. In each basic activity inside the production
cycle, these are inevitable threats that can occur along the way. Major threats such as:
Production Cycle Activity Threats Applicable Control Procedures
Product Design 1. Poor Product Design  Accurate date about the
relationship between
components and finished
goods.
 Analysis of warranty and
repair costs to identify
primary causes of product
failure to be used in
redesigning the product.
Planning and Scheduling 2. Over or Under Production  More accurate production
planning, including
accurate and current sales
forecast and inventory
data.
 Investments in product

3. Suboptimal Investment in
Fixed Assets
Production Operations 4. Theft or Loss of Inventories
and Fixed Assets
5. Disruption of Operations
Cost Accounting 6. Inaccurate Recording and
Processing of Production
Activity Data
planning.
 Validity checks on
production orders.
 Proper authorization of
fixed asset transactions.
 Physical access to
inventory should be
restricted.
 All internal movement of
inventory should be
documented.
 Fixed assets must be
identified and recorded
 Logical and physical
access controls should be
enforced for production
records.
 Backup power sources,
such as generators and
uninterruptable power
supplies
 Investigate disaster
preparedness of key
suppliers and identify
alternative sources for
critical components.
 Automate data collection
with RFID technology, bar
code scanners, and badge
readers to ensure accurate
data entry.