GBA 2004, Ch1

The Fremont, California, plant of NUMMI (New United Motor Manufacturing, Inc.), a
joint venture of General Motors and Toyota, assembles two types of cars (Corollas and
Geo Prisms). A separate assembly line is used for each type of car.

REQUIRED:

Classify each of the following cost items as

1. Direct or indirect (D or I) costs with respect to the type of car assembled (Corolla
or Geo Prism).
2. Variable or fixed (V or F) costs with respect to how the total costs of the plant
change as the number of cars assembled changes. (If in doubt, select the cost type
based on whether the total costs will change substantially if a large number of cars
are assembled).

Cost Item D or I V or F

a. Cost of tires used on Geo Prisms

b. Salary of public relations manager for NUMMI plant

c. Annual awards dinner for Corolla suppliers

d. Salary of engineer who monitors design changes on Geo Prism

Freight costs of Corolla engines shipped from Toyota City, Japan, to
e.
Fremont, California
f. Electricity costs for NUMMI plant (single bill covers entire plant)
Wages paid to temporary assembly-line workers hired in periods of high
g.
production (paid on an hourly basis)
h. Annual fire insurance policy cost for NUMMI plant
GBA 2004, Ch1

Each of the following cost items pertains to one of the following companies: General
Electric (a manufacturing-sector company), Loblaws (a merchandising-sector company),
and Excite (a service-sector company):

a. Perrier mineral water purchased by Loblaws for sale to its customers

b. Electricity used to provide lighting for assembly-line workers at a General
Electric refrigerator assembly plant
c. Amortization on computer equipment at Excite used to update Web site
directories
d. Electricity used to provide lighting for Loblaws store aisles
e. Amortization on computer equipment at General Electric used for quality testing
of refrigerator components during the assembly process
f. Salaries of Loblaws’ marketing personnel planning local newspaper advertizing
campaigns
g. Perrier mineral water purchased by Excite for consumption by its software
engineers
h. Salaries of Excite marketing personnel selling banner advertizing

REQUIRED:

1. Distinguish among manufacturing-sector, merchandising-sector, and

service-sector companies. Which of these have inventories of goods for
sales?
2. Classify each of the (a) to (h) cost items as an inventoriable cost or a
period cost.