5-8. Application of managed-gross-profit chart in practical profit control in companies.
I have had the opportunity to discuss the managed-gross-profit chart theory with some university professors and some professional accountants. They generally showed little interest in the chart or its importance, in terms of actual business management, of converting an income statement into a chart other than their responses to my belief in the error of Solomons’s theory. It is important to bear in mind, that Solomons’s theory is the orthodox theory officially recognized in university accounting textbooks.  
 I received such comments as:  
（1） Is there any need for a profit chart in business management considering an income statement can be expressed in tables?
（2） Despite the break-even chart being used theoretically in textbooks, I haven't witnessed its application in actual business management.
（3） Profit, which is obtained by subtracting direct costs, manufacturing overhead applied and SG&A expenses from sales, is an ageold concept. Is there any significance for it in business management? 
These are typical questions asked and views held by  professional accountants and university professors. They differ greatly from those of business managers. The purpose of accounting for company managers is a tool for developing  their companies profitability, although they remain aware of the importance of the principle of  disclosure in financial statements. 
In general, the management accounting system in companies should be able to:
(1)  help implement belt-tightening measures for a company  before the start of the year;
（2） make a profit plan of the year;  
（3） disclose profit information to employers through out the year;  

（4） express a profit per unit of goods sold and inspire the employers to increase profits;  

（5） keep on changing company’s cost structure, including indirect costs, during any period of the fiscal year;
（6） flexibly deal with managerial accounting demands by changing business conditions;  

（7） deal with demands from both large businesses and small businesses.  

Financial accounting and management accounting should doubtless be consistent with each other and should be understood by every one.  

 

The assignment of indirect costs to divisional accounting departments, sometimes causes controversial responses. From the point of management accounting, cost variances among departments should not be unaccounted, as this allows the  existence of inefficient departments. The accounting system should meet such needs.

In industrial production, indirect costs increasingly account for a high proportion of total costs. Therefore, the method of dealing with, and analyzing freely, indirect costs is desired.  
For years, I have worked at management level in several companies in  the job order initiated industry. I have no experience in the process cost accounting industry, so the following descriptions, in some instances, may only related to the job order initiated industry.

To an employee on the front-line or a responsible person of a sales department, the sales judgment, per one unit of goods sold, to get a profit in the meaning of "sales gross profit in official statements"  is virtually impossible. Actually, price and transaction judgments are determined based on normal costs. The profit target is of the managed gross profit per one unit of goods sold. Consequently, companies are, in fact, internally operated based on normal costs and managed gross profits for goods sold. In general, in this process, the companies may indicate a percentage of a price as selling (or SG&A) costs.  
There would not be a case in which an employee on the selling front-line or a supervising position could grasp cost formation of goods in sensory perception by only seeing the table of the cost formation. 
Executives in a company cannot cultivate their senses for cost-volume-profit relationships by only seeing income statements.  
The 45°-line break-even chart under absorption costing has been presented for the first time by me. However this chart is difficult in practical managerial use or has never been used in my management. The reason is that the  variable costs size in the chart is too large comparing to the profit size in order to judge the graph. This will be same in a  45°-line chart under direct costing. The 45°-line break-even chart is for textbooks.   
If one department in the 2nd kind of manufacturing overhead departments is aptly selected, the position and slope of the "marginal managed gross profit line or the line 1 in Fig. 3" in the department become stable through the period. However a problem of interpreting or explaining "managed gross profit ratio line or tan β (ε) in Fig. 3" will arise. The employees have been familiar to the profit ratio of QM (ε) / X (ε) but not to the profit ratio of   fC (ε) / X (ε), or tan β (ε) including AXII.  

If profit control is being made using the managed-gross-profit chart as guidance, even the persons, who do not understand the meaning of income statement, can intuitively know the relationships by themselves among  X (ε), X (φ), QM (ε), P (ε) and η (ε) (= AX (−) (ε) − AY(+)(ε)).  

We can easily use commercially available software to draw the managed-gross profit-chart. If a routine-flow to convert an income statement to a managed gross profit chart is prepared, anyone not received accounting education could implement monthly profit control.  

In a manufacturing overhead department, manufacturing overheads applied are distributed to direct cost departments keeping cost-consciousness.  

A method of dividing the cost variance of a manufacturing overhead department to each direct cost department is described in reference (2). It has a beneficial effect on divisional organization system, if its dividing method is previously agreed on among divisions (direct cost departments) at the beginning of the year. Namely no squabble will arise between divisions at the end of the fiscal year.  
When facing information technology age, it is imperative that tables should be converted to charts in order to send the chart images to all the persons concerned over the Internet or Intranets. The managed-gross-profit chart is best suited to a basis of constructing BPR (Business Process Reengineering).