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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

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 companys accounting intern is new and has confused the Finn Corporations 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?

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 $190,960 62% 17.4%
Appraisal 55,440 18 5.0
Internal failure 43,120 14 3.9
External failure 18,480 6 1.7
Totals $308,000 100% 28.0%

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 $308,000

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