Question

Town bikes is a SME that produces specialty bikes, made to order. To produce one bike for one customer order, what are the costs involve and how do we categories these costs.

DISCUSSION: Each student can discuss one cost and it's category other students can add more to it by providing details in terms of journal entries.

Lets try this out.... I am excited....  (SUBMISSION DEADLINE: 3RD JUNE

Answer 1

Answer:

Various costs involved in producing a bike, Category of costs and Journal Entries

Sl No	Nature of cost	Category	Discussion & Journal Entry
1	Raw materal and Spare parts	Cost of production (or) Cost of material consumed	Major part of cost to be incurred for production of bikes is to manufacture Raw materail and spare parts. Also called as Inventory. Also, Town bikes can purchase these inventories and produce bike by assembling the parts. Journal Entry Inventory Debit Accounts Payable Credit Note: The above journal entry applicable in case of purchase of spare parts.
2	Salaries and Employee Benefits	Employee Benefit Expenses	Manufacturing or Assembling of bike invloves work of production employees. Payroll costs incurred towards this order is cost of production of that particular order.   Journal Entry: Payroll Costs Debit Payroll Costs Payable Credit
3	Marketing and Advertisement Expenses	Selling Expenses	To reach the customers, entity shall incur some marketing and advertisement costs in the form of (i) Exhibitions (ii) Telivision & Newspaper advertisements etc,.   Journal Entry Selling Expenses Debit Accounts Payable Credit
4	Office Maintenance, Stationery, Comminication and Electricity Expenses	Administration Expenses	Costs such as electricity, internet, telephone and travel expenses are incurred to run the business. These costs are also apportioned to particular customer order. Journal Entry Administration Expenses Debit Accounts Payable Credit

Broadly the above costs are incurred in production of speacility bikes.