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 ASSETS 110 Cash 112 Accounts Receivable 117 Office Supplies 118 Prepaid Insurance 150 Raw and In Process Inventory 151 Finished Goods Inventory 180 Land 190 Equipment CHART OF ACCOUNTS Finn Corporation General Ledger REVENUE 410 Sales 191 Accumulated Depreciation-Equipment 192 Store Equipment 193 Accumulated Depreciation-Store Equipment 194 Office Equipment EXPENSES 510 Cost of Goods Sold 511 Conversion Costs 521 Advertising Expense 522 Depreciation Expense-Store Equipment 530 Salaries Expense 531 Rent Expense 532 Depreciation Expense-Office Equipment 533 Insurance Expense 534 Office Supplies Expense 630 Check My Work 6 more Check My Work uses remaining. 194 Office Equipment 195 Accumulated Depreciation-Office Equipment 534 Office Supplies Expense 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 REVENUE 410 Sales ASSETS 110 Cash 112 Accounts Receivable 117 Office Supplies 118 Prepaid Insurance. EXPENSES 510 Cost of Goods Sold 117 Office Supplies 118 Prepaid Insurance 150 Materials Inventory 160 Work in Process Inventory 170 Finished Goods Inventory 180 Land 190 Equipment "191 Accumulated Depreciation-Equipment 192 Store Equipment 193 Accumulated Depreciation-Store Equipment 194 Office Equipment 195 Accumulated Depreciation-Office Equipment 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 EXPENSES 510 Cost of Goods Sold 511 Factory Overhead 521 Advertising Expense 522 Depreciation Expense-Store Equipment 530 Salaries Expense 531 Rent Expense 532 Depreciation Expense-Office Equipment 533 Insurance Expense 534 Office Supplies Expense 539 Miscellaneous Expense 710 Interest Expense Chapter 27 Mastery (Mastery) 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? 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 $278,400 58% 13.9% Appraisal 86,400 18 4.3 Internal failure: 67,200 14 3.4 External failure 48,000 10 2.4 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 Prevention Appraisal Internal failure External failure Totals Quality Activity Analysis Percent of Total Quality Cost Quality Cost Percent of Total Sales $278,400 58% 13.9% 86,400 18 4.3 67,200 14 3.4 48,000 10 2.4 $480,000 100% 24.0% 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 A Activity Cost Rework: Inspecting incoming raw materials. Warranty work Process improvement effort Total activity cost $480,000