CHAPTER 11
Conversion Processes and Controls
STUDY OBJECTIVES
This chapter will help you gain an understanding of the following concepts:
Basic features of conversion processes
Components of the logistics function
Cost accounting reports generated by conversion processes
Risks and controls in conversion processes
IT systems of conversion processes
Ethical issues related to conversion processes
Corporate governance in conversion processes
Nissan Motor Company's automobile plant near Jackson, Mississippi, has cutting-edge technology and robotic assemblers.
“Assembly lines are powered by enormous robots; at one stop in the line, a bay of over 25 robots each make 12 welds per second. Suppliers are tied into the line by computers; parts actually arrive in the order they'll be used.”1
The complex technology allows Nissan to handle four different models in random order and to finish a vehicle in 13 hours. The plant can produce 400,000 vehicles in a five-day period with two shifts operating.
Manufacturing has changed dramatically over the last few decades due to robotics, computers, and global competition. Manufacturers must have more flexible activities, as in the Nissan example. They must also have processes and accounting systems that help them predict, order, and track the various raw materials and parts they use in manufacturing. This chapter examines the activities and information flows in the manufacturing process.
The first part of the chapter covers the basic features of the conversion processes, beginning with a typical traditional system and the related controls, followed by trends in computer-based systems. The latter part of the chapter examines ethical issues and corporate governance related to the conversion processes.
As was true in the previous three chapters, individual companies may have differences in their conversion processes. This chapter explains common, simple methods of conducting these business activities, and these explanations should help you understand many accounting systems involving these conversion processes, even if they are not exactly like the ones you may have seen in your personal experience or will see in the future.