5-7. The Meaning of Classifying Costs in Fixed Costs and Variable costs

The break-even sales in the managed-gross-profit chart is a little different from the break-even sales under direct costing, if inventories =0. This is because in the managed gross profit theory, indirect costs are not classified into fixed costs and variable costs, but under direct costing, on the other hand, indirect costs are classified into fixed costs and variable costs. This influence will be studied.

When, in an actual business management, actual sales are close to the breakeven-sales, there occur no problems, because the two sales run close to each other. When the actual sales are far from the breakeven-sales, the breakeven-sales in the managed gross profit chart are obviously a little different from the breakeven-sales under direct costing because of the above-mentioned reason. However, this influence is unworthy of discussion in actual business management terms for the following reasons:

（1）In general, administrative personnel costs (actual costs) in indirect costs are not always constant from the beginning to the end of a fiscal year. If one kind of indirect cost is classified as a fixed cost at the beginning of the year in ledgers, this will vary, as needed by managers’ judgments during the period.

（2）It is  found, by making a managed gross profit chart, that the break-even sales are largely influenced by human abilities such as selling power (it is a function of two variables, unit price  and sales quantity of goods sold) and cost control abilities which carry out direct cost reduction and implement increases or decreases in indirect costs.

（3）When actual sales are far from the break-even sales, the managerial value of breakeven-sales obtained from the break-even chart is small. If one is required to make a forecasting income statement, in which the target of sales are far from the break-even sales, one only needs to remake a new planning statement based on the new sales.

（4）From my point of view, the profit concept in absorption costing is more reasonable than in direct costing. Companies should aim at the profit defined in financial statements under absorption costing, and so they should use the break-even point derived from the managed gross profit chart.