CHSE Odisha Cost Accounting common mistakes
CHSE Odisha Cost Accounting · Understand the traps and how to avoid them.
In the cost sheet, the candidate adds the factory supervisor's salary and plant depreciation to prime cost as direct costs, then also includes the same items in factory overhead.
Because both are incurred inside the factory, the candidate equates 'factory-related' with 'direct'. Direct cost requires traceability to the cost unit without apportionment.
What to do instead
Apply a traceability test before classifying: direct material and direct labour are identifiable with the product; supervisor salary and depreciation are indirect and belong only in works/factory overhead. Enter each cost once.
While calculating EOQ, the candidate substitutes monthly consumption (for example 1,000 units) for annual demand (12,000 units), or uses the order quantity rather than annual demand in the formula.
The formula is memorised as '2AO/C' without checking that A is annual demand and O is cost per order; monthly figures are left unconverted.
What to do instead
Write A = annual consumption, O = ordering cost per order, C = annual carrying cost per unit (or i × purchase price per unit if given as a percentage). Convert monthly or quarterly consumption to annual before substitution and state the units.
The candidate charges all overtime premium and normal idle time to direct wages, so direct labour cost is overstated and overhead is understated.
Because the wages are paid to direct workers, the candidate assumes the whole payment is direct; the cause of the extra payment is not examined.
What to do instead
Treat normal idle time and normal overtime premium as overhead. Charge overtime premium to direct cost only when it arises from a specific customer request or urgent job; abnormal idle time goes to costing profit and loss. Direct wages should reflect actual productive time at the normal rate.
When apportioning service department costs, the candidate allocates each service department's cost only to production departments and ignores services given to other service departments, such as canteen serving maintenance.
The primary distribution summary is followed mechanically; reciprocal services are not identified, so total overhead absorbed is wrong.
What to do instead
Before absorption, identify reciprocal services. Use repeated distribution or simultaneous equations to redistribute service department costs among service departments, then absorb only production department overheads using a predetermined absorption rate.
The candidate omits the opening/closing work-in-progress adjustment in the cost sheet and treats carriage outward as part of works cost.
The cost sheet is prepared line by line from the trial balance without functional classification; carriage outward looks like a transport cost and is grouped with carriage inward.
What to do instead
Build the cost sheet by function: prime cost, works cost after adjusting work-in-progress, cost of goods sold after adjusting finished goods, and cost of sales after adding selling and distribution costs. Carriage inward is part of works cost; carriage outward is selling and distribution.
For a partly completed contract, the candidate credits the full contract price to profit and loss and calculates profit on the entire contract value, ignoring work certified, work uncertified and retention money.
Contract price is treated like sales revenue; the candidate does not apply the stage-of-completion rule.
What to do instead
Recognise revenue only to the extent of work certified, with work uncertified at cost. Compute notional profit = value of work certified − cost of work certified. Transfer to profit and loss only the permitted fraction based on stage of completion and cash received/work certified; keep retention and uncertified work out of realised profit.
In process costing, the candidate values abnormal gain at the selling price of output, or credits the process account with abnormal gain, and computes cost per unit without deducting the scrap value of normal loss.
Abnormal gain is confused with good output; the normal loss scrap value is treated as a note rather than an adjustment.
What to do instead
Compute normal cost per unit = (total process cost − scrap value of normal loss) ÷ (input units − normal loss units). Value abnormal gain at that normal cost per unit, debit the process account and credit the abnormal gain account. Normal loss is credited only at scrap value.
The candidate computes material usage variance as (standard price − actual price) × actual quantity, which is actually the price variance, and then adds price and usage variances without checking the sign.
Both formulas start with a price or quantity difference; the candidate memorises the structure but swaps the price and quantity terms.
What to do instead
Write the sub-variance before calculating: price variance = (SP − AP) × AQ; usage variance = (SQ − AQ) × SP. Use actual quantity purchased for price variance when the question is on purchases, and reconcile total material cost variance = price variance + usage variance. Check the sign against a cost increase or decrease.
In the cash budget, the candidate enters depreciation as a cash payment and records credit sales in the month of sale, ignoring the collection pattern.
The cash budget is confused with a profit and loss statement; all expenses are listed regardless of whether cash moves.
What to do instead
Include only cash receipts and cash payments. Exclude depreciation, bad debts written off and other non-cash items. Record credit sales when cash is collected using the given collection percentages by month, and record credit purchases when paid. Show opening and closing cash balance.
For a special order with spare capacity, the candidate compares the offered price with total absorption cost, including allocated fixed overhead, and rejects an order that would increase contribution.
Fixed overhead is treated as a relevant per-unit cost; the candidate does not ask whether the fixed cost will change or whether capacity is idle.
What to do instead
Use relevant costing: incremental variable cost plus any additional fixed cost caused by the order. If spare capacity exists and existing fixed costs are unavoidable, allocated fixed overhead is not relevant. Accept if the special price exceeds incremental cost and total contribution rises.