Question

Mastery Problem: Lean Manufacturing and Activity Analysis

Finn Corporation

Finn Corporation produces inflatable rafts for recreational use. The company has heard about lean accounting, and is anxious to find out more about the system, to determine whether it will help streamline their operations and cut costs.

The company has hired you as a consultant to help them implement their lean accounting program, and also to assist with recreating some data lost in a recent computer mishap.

Chart of Accounts I

CHART OF ACCOUNTS Finn Corporation General Ledger
ASSETS	REVENUE
110 Cash	410 Sales
112 Accounts Receivable
117 Office Supplies	EXPENSES
118 Prepaid Insurance	510 Cost of Goods Sold
150 Raw and In Process Inventory	511 Conversion Costs
151 Finished Goods Inventory	521 Advertising Expense
180 Land	522 Depreciation Expense-Store Equipment
190 Equipment	530 Salaries Expense
191 Accumulated Depreciation-Equipment	531 Rent Expense
192 Store Equipment	532 Depreciation Expense-Office Equipment
193 Accumulated Depreciation-Store Equipment	533 Insurance Expense
194 Office Equipment	534 Office Supplies Expense
195 Accumulated Depreciation-Office Equipment	539 Miscellaneous Expense
	710 Interest Expense
LIABILITIES
210 Accounts Payable
211 Salaries Payable
212 Unearned Rent
213 Customers Refunds Payable
215 Notes Payable
218 Sales Tax Payable
EQUITY
310 Common Stock
311 Retained Earnings
312 Dividends

Chart of Accounts II

CHART OF ACCOUNTS Finn Corporation General Ledger
ASSETS	REVENUE
110 Cash	410 Sales
112 Accounts Receivable
117 Office Supplies	EXPENSES
118 Prepaid Insurance	510 Cost of Goods Sold
150 Materials Inventory	511 Factory Overhead
160 Work in Process Inventory	521 Advertising Expense
170 Finished Goods Inventory	522 Depreciation Expense-Store Equipment
180 Land	530 Salaries Expense
190 Equipment	531 Rent Expense
191 Accumulated Depreciation-Equipment	532 Depreciation Expense-Office Equipment
192 Store Equipment	533 Insurance Expense
193 Accumulated Depreciation-Store Equipment	534 Office Supplies Expense
194 Office Equipment	539 Miscellaneous Expense
195 Accumulated Depreciation-Office Equipment	710 Interest Expense
LIABILITIES
210 Accounts Payable
211 Salaries Payable
212 Unearned Rent
213 Customers Refunds Payable
215 Notes Payable
218 Sales Tax Payable
EQUITY
310 Common Stock
311 Retained Earnings
312 Dividends

Selecting Chart of Accounts

The company’s accounting intern is new and has confused the Finn Corporation’s regular chart of accounts with the proposed chart of accounts for the lean accounting system.

Review the charts of accounts on the Chart of Accounts I and Chart of Accounts II, and then answer the following question.

Which chart of accounts should Finn Corporation most likely implement if they want to use lean accounting principles?

Chart of Accounts I

Feedback

Review the types of accounts that are used in the lean accounting system.

Cost of Quality Report

This year, Finn Corporation implemented programs designed to assess the costs of quality for the company. However, the company recently suffered a data loss, and some of its records have been either partially or completely erased. The accounting intern for Finn Corporation has located a copy of a recent cost of quality report, shown as follows, but the quality activity analysis used to create the report has been lost.

Finn Corporation Cost of Quality Report
Quality Cost Classification	Quality Cost	Percent of Total Quality Cost	Percent of Total Sales
Prevention	$253,760	61%	15.9%
Appraisal	66,560	16	4.2
Internal failure	49,920	12	3.1
External failure	45,760	11	2.9
Totals	$416,000	100%	26.0%

Quality Activity Analysis

As mentioned on the Cost of Quality Report, Finn Corporation recently suffered a data loss, and some of its records have been lost. After reviewing the Cost of Quality Report, recreate the quality activity analysis in the following table from which the cost of quality report was created.

Quality Control Activities	Activity Cost
Rework	$
Inspecting incoming raw materials
Warranty work
Process improvement effort
Total activity cost	$416,000

Answer 1

Quality Cost classification	Computation	Activity Cost
Rework-Internal Failure Cost	$416000*12%	$49,920
Inspecting incoming raw materials-Prevention	$416000*61%	$253,760
Warranty work-External Failure Cost	$416000*11%	$45,760
Process Improvement effort-Appraisal	$416000*16%	$66,560
Total activity cost		$416,000