Sales Forecasts and Production Planning

Production starts with a sales forecast, a marketing projection of future sales, which informs the production plan—a schedule balancing demand, costs, and inventory levels. The bill of materials specifies required raw materials, checked against the raw material inventory status report. If materials are insufficient, purchase requisitions trigger the acquisition cycle. Labor needs are also assessed, ensuring alignment with human resources.

Production

Once the production plan is approved by relevant departments (sales, production, HR), a production order authorizes manufacturing. Materials are released via a materials requisition (or transfer ticket), and custody shifts to production personnel. Errors here can lead to significant costs (e.g., overstock or shortages), underscoring the need for accurate planning and documentation.

Cost Accounting

After production, cost accounting records costs using standard costs (estimated costs for materials, labor, and overhead), comparing them to actual costs for variance analysis. Production reports update finished goods inventory, while overhead allocation assigns indirect costs. Retailers like Target adapt these concepts to manage goods movement from warehouses to stores, showing the cycle’s broader applicability.