1. 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