Flowchart Production Cycle
Using a context diagram, the Production Cycle was shown as being linked to the Revenue Cycle by receiving customer orders and sales forecasts from the Revenue Cycle, and sending finished goods to the revenue cycle. It is linked to the Expenditure Cycle by sending purchase requisitions to order raw materials to the Expenditure Cycle, and the Expenditure Cycle then allocates overhead and raw materials costs to the Production Cycle. The Production Cycle is linked to the Human Resource/Payroll Cycle by requesting labor from HRP, which then allocates the labor costs to the Production Cycle. Management receives reports from the Production Cycle, which sends cost of goods produced information to the General Ledger and Reporting System.
The overall performance of the Production Cycle can be improved through technology. The entire process should be integrated, using relational databases linked to internal and external sources as part of an ERP (Enterprise Resource Planning) operation. CIM (Computer Integrated Manufacturing) using robots and on-line terminals can rapidly implement production plans, reducing costs. Data about the costs of production, stored in the work in process file and used in cost accounting, can be integrated with production operations information regarding the physical aspects of the manufacturing operation to give real time information to enable companies to monitor quality and correct defects before they drive up costs. This is a basis for the ABC (Activity Based Accounting) systems.
ABC cost systems allocate costs to the activities that create them, such as grinding and polishing, and