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 522 Depreciation Expense-Store Equipment 180 Land 190 Equipment 530 Salaries Expense 101 Accumulater Denreriation-Fruinment 521 Dent Evnence 193 Accumulated Depreciation-Store Equipment 533 Insurance Expense 194 Office Equipment 534 Office Supplies Expense 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 Chart of Accounts II CHART OF ACCOUNTS Finn Corporation General Ledger ASSETS REVENUIF 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 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 Finn Corporation Cost of Quality Report Percent of Total Quality Cost Percent of Total Sales Quality Cost Classification Quality Cost Prevention $198,240 59% 16.5% Appraisal 57,120 17 4.8 Internal failure 43,680 13 3.6 External failure 36,960 11 3.1 Totals $336,000 100% 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 ning raw materials Warranty work Process improvement effort Total activity cost $336,000