Question

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 its 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.
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 the quality report, shown below, but the quality activity analysis used to create the report has been lost.
Cost of Quality Report
Quality Cost Classification Quality Cost Percent of Total Quality Cost Percent of Total Sales
Prevention $172,800.00 60.0% 14.4%
Appraisal 51,840.00 18.0 4.3
Internal failure 37,440.00 13.0 3.1
External failure 25,920.00 9.0 2.2
Total $288,000.00 100.0% 24.0%
As mentioned on the Cost of Quality Report panel, Finn Corporation recently suffered a data loss, and some of its records have been lost. After reviewing the Cost of Quality Report panel, recreate the quality activity analysis in the table below from which the cost of the quality report was created.
Quality Activity Analysis
1 Rework
2 Inspecting incoming raw materials
3 Warranty work
4 Process improvement effort
5 Total $288,000.00

Answer 1

Answer:

Rework-Internal Failure Cost $37,440

Inspecting incoming raw materials-Prevention $172,800

Warranty work-External Failure Cost $25,920

Process Improvement effort-Appraisal $51,840

Total activity cost $288,000

Explanation:

Calculation to recreate the quality activity analysis

QUALITY ACTIVITY ANALYSIS

Quality Cost classification Activity Cost

Rework-Internal Failure Cost $37,440

($288,000*13%)

Inspecting incoming raw materials-Prevention $172,800 ($288,000*60%)

Warranty work-External Failure Cost $25,920 ($288,000*9%)

Process Improvement effort-Appraisal $51,840 ($288,000*18%)

Total activity cost $288,000

($37,440+$172,800+$25,920+$51,840)

Therefore the quality activity analysis recreation are :

Rework-Internal Failure Cost $37,440

Inspecting incoming raw materials-Prevention $172,800

Warranty work-External Failure Cost $25,920

Process Improvement effort-Appraisal $51,840

Total activity cost $288,000