YAMAGATA, Japan--(BUSINESS WIRE)--Hayashi, Yuichiro, Dr. Eng., President of YOUSHOJI, Ltd., Japan is proud to announce the issuance of the US patent, entitled “Accounting method and accounting system", No. US 8,554,646 B2, Oct. 8, 2013. The patented method of accounting under standard costing utilizes a new break-even chart which unifies management accounting and financial accounting under standard costing.
■ 2013 Profit Chart and 2007 Profit Chart under Standard Costing
The break-even chart under standard costing (hereinafter referred to as a profit chart) used in the US Patent in 2013 is shown in Figure 1 (2013 Profit Chart). Figure 1 is closely associated with the US patent entitled “Accounting system for absorption costing”, NO. US 7,302,409 B2, Nov. 27, 2007. The profit chart used in the US patent in 2007 is shown in Figure 2 (2007 Profit Chart).
■ Operating Profit under Standard Costing
In standard costing, we determine the operating profit at the end of the final year as the result of the following process. Let X be “Sales or Goods sold”; Q be “Sales gross profit”; πO be “Sales operating profit”; DX be “Manufacturing direct cost (variable and actual) ”; C be “ Manufacturing overhead cost (fixed and actual) ”; G be “Selling and administrative costs (fixed and actual) ”; E be “ Manufacturing absorption cost”; ACX be “Manufacturing overhead allocation cost to X”; ACY be “Allocation revenue of C accounting department during the present accounting period”; ACY( + ) be “Year-ending ACY carried forward to inventories”; ACX( - ) be “Year-beginning ACX carried down to X”. η (eta) = ACX(-) - ACY(+) = ACX - ACY is named “Net carryover manufacturing overhead allocation cost”. Operating profit πO is obtained as follows. : Q = X – E; E = DX + C + ACX( - ) - ACY( + ) = DX + [C + η]; πO = Q – G = X - DX - [C + η + G] ·····(1). Eq. (1) shows that the amount of η affects the value of πO.
■ 2007 Profit Chart
For management accounting under standard costing, besides the above-mentioned notations, we define the following accounting technical terms and notations at any given point in time during a year accounting period, e.g. a monthly or even weekly ending. Let EM = DX + ACX be “Managed manufacturing absorption cost”; QM = X - EM be “Managed gross profit”; πMO = QM - G be “Managed operating profit”; πAC = ACX - (C + η) be “Managed allocation profit” or “Managed manufacturing overhead allocation profit”; δ = ACY - C be “Manufacturing overhead variance”; VS = X - DX be “Marginal profit”; FS = C + η + G be “Managed fixed cost”. Using those notations, we obtain Figure 2 expressing the locus of the marginal condition where πO = 0 is satisfied in Eq. (1). Observing Figure 2 gives πO = πMO + πAC and πAC = ACX - (C + η). Since η = ACX + ACY, we can also express πAC = δ. Since none of the formal terms had existed in conventional accounting, the inventor coined these for management accounting.
■ 2013 Profit Chart
The inventor was stressing to the employees that managed fixed cost FS including η shown in Fig.2 is a constant. However, the marginal gross profit ratio line (segment EN), which should connect with FS is an oblique line from top left to bottom right. Since such a profit chart has not been taught in accounting education, the more educated members in accounting feel disinclined to use the 2007 Profit Chart. Therefore, the inventor began to research how to draw the line FS horizontally in Figure 2. As a result, the inventor created the 2013 Profit Chart shown in Figure 1 by transforming Figure 2 into Figure 1. We can easily transform Figure 1 into a 45 degree break-even chart, which is equivalent to Eq. (1). In Figure 1, if we let η = 0 and ACX = 0, we can obtain the profit chart or the marginal profit chart, under direct costing, where FD = C + G is expressed as a horizontal line. Consequently, since both Figure 1 and Figure 2 are equivalent to each other, they include the direct costing profit chart.
■ Significance of the Patent
It is very useful for a company to use this accounting method in order to manufacture a wide variety of products where each product’s accounting is treated as a profit center. The outstanding problem for many decades concerning the difference between standard costing and direct costing profit charts is now solved. This means that both standard costing and direct costing are unified.
■ More Information
The 2007 Patent and the 2013 Patent are easily searchable on Google Patent. More Information is available on the inventor’s website. URL: http://www11.plala.or.jp/yuichiro-h/. The website can also be accessed by searching for “Making-Digesting-Burning”. Additional information on the website includes an overview and the inventor’s resume.