Hayashi Construction, Inc.: a Business Method of Accounting Using Absorption Costing, Including a Method of Drawing a Break-Even Chart Was Admitted as a Patent by the USPTO

Business Wire, June 11, 2008

SAKATA, Japan -- Hayashi Construction, Inc. was awarded a U.S. patent for an invention entitled "Accounting System for Absorption Costing." Absorption costing is an accounting system generally and widely used in making an external income statement. Representative absorption costing is standard costing under absorption costing. Costing relative to the absorption costing is direct costing.

Finished product (goods sold stock in inventory) costs comprise manufacturing costs and period costs such as selling, general and administrative expenses (SGA). In absorption costing, manufacturing costs consist of direct costs (variable costs) and indirect manufacturing costs(fixed costs). The indirect manufacturing costs are distributed to goods sold and inventories by allocation. In direct costing, the indirect manufacturing costs are treated as period costs in the same way as in SGA, and so they are not distributed to inventories.

The famous 45-degree line break-even chart was found about 100 years ago in the U.S. and now it is taught as a break-even chart in industrial bookkeeping in commercial high schools. The chart corresponds to the case where eta= 0 in Fig.1, wherein eta shows the net carryover manufacturing overhead applied in inventories. However, until now there was no break-even chart that was usable in practical accounting in absorption costing.

The method of the inventor, Yuichiro Hayashi, for drawing the break-even chart under absorption costing is very easy for practical enterprise accountants. It is as follows: in an income statement under absorption costing, it is defined that "eta= manufacturing overhead applied in year-beginning inventories - manufacturing overhead applied in year-end inventories"; eta is treated as a fixed cost; a conventional 45-degree line break-even chart is drawn adding eta to other fixed costs.

Although this method is very easy as a result, the theoretical analysis for the chart is really very difficult. The inventor developed complex theoretical analysis in order to find the chart and to prove its truth for 10 years or more. D.Solomons in U.S. studied the same theme about 40 years ago and presented a break-even chart and a break-even sales formula under absorption costing, which are now described in accounting textbooks in universities.

Hayashi has made a comparative study of Solomons's and his own theories, and has concluded that Solomons's theory is incorrect. In addition, although the managed gross profit chart theory included in this patent is also important, its explanation is omitted because its description is long.

Hayashi applied the accounting system using absorption costing including this break-even chart as a business patent to the United States Patent and Trademark Office. This was admitted as a patent by the USPTO on 27 November 2007 (Accounting System for Absorption Costing, Patent No.: US 7,302,409 B2).

In addition, the inventor named the gross profit before cost variances adjustment in standard costing as the managed gross profit. In the patent, a method of drawing the managed gross profit chart, which is shown in Fig.2 and more important than the 45-degree break-even chart, is also included. However, the explanation is omitted.

Please visit the inventor's website for further information. (http://www11.plala.or.jp/yuichiro-h/index.htm) By the way, Hayashi demonstrates in his website that J.M.Keynes's principle of effective demand due to the investment multiplier effect theory is mathematically incorrect. As one of the reasons, the inventor adduces the argument that Keynes's investment multiplier effect chart is not logically consistent with the inventor's break-even chart under absorption costing

The inventor desires that the accounting knowledge on this patent will be widely diffused all over the world and the accounting system with his break-even chart under absorption costing will become a standard specification and utilized in accounting software business.