CONVERSION CYCLE

The Sun Manufacturing Ltd manufactures assembling components for local automotive industry. The production process of the company involves planning, scheduling, and controlling of the physical components through the various stages in the manufacturing process. It begins in the production planning and control department whereby the production manager assesses the inventory requirements needed to produce the components and prepares a purchase requisition to be forwarded to the purchasing department.

After reviewing the bills of materials and route sheet, the production manager prepares three copies each of the following documents: work orders, move tickets and materials requisitions. One copy of the work orders, move tickets, and materials requisitions note is sent to cost accounting, while the remaining two copies are sent to the supervisor in the work center.

Upon receiving the production control documents, the supervisor in the work center initiates the production process. First, he sends a copy of the materials requisitions to the inventory storeroom to obtain the necessary raw materials. If additional raw material is needed for a job in progress, he will call the inventory storeroom clerk to sent the required materials and any excess materials will be kept at the work center for future use.

When the inventory storeroom receives the materials requisition, they releases the raw materials to the work centers. The inventory storeroom clerk files a copy of the materials requisitions, updates the inventory records and creates a journal voucher that is sent to the cost accounting department.

After the completion of the production process, the work center supervisor sends the finished assembling components to the finished goods warehouse. He then filed one copy each of the work order, move ticket, and materials requisitions and sends the remaining copies of the work order and move ticket to the cost accounting department. He also reviewed the job tickets and time cards which are sent to cost accounting and payroll, respectively.

Once the cost accounting department has received all the necessary information from the other departments, the work-in-process file is updated. The cost accounting clerk then filed all the following documents: work orders, move tickets, and materials requisitions from the production planning and control department; job tickets, work orders and move tickets from the work center; and journal vouchers from the inventory storeroom.

Finally, the cost accounting clerk prepares a journal voucher which is sent to the general ledger department. This journal voucher, together with the journal voucher sent by the inventory storeroom is used to update the general ledger and later filed in the general ledger department.

REQUIRED:

a.Analyze the internal control weaknesses that exist in the conversion system of the Sun Manufacturing Ltd and suggest the appropriate improvements.

(20 marks)

b.Explain the following documents nomally used in the conversion cycle:

i.Bill of materials

ii.Route sheet

iii.Work order

iv.Move ticket

v.Materials requisition