Rebecca Silva
Managerial Accounting
Spring 2013 MW 10:30 May 6 2013

Renton Tractor Company

To Whom it May Concern,
As shown by the data I have enclosed, the most recent year at Renton Tractor Company has been the most profitable year since the company has been in business.
In Zac Dalton’s first year as manager, the company saw the highest amount of sales in units with the least amount of units produced. With this being the case, he was most likely correct in his claim of clearing out old inventory.
The income statement that showed the loss absorbed the cost of the excess inventory at the time of sale. However, when we apply the cost of the excess inventory during the year it was produced, we get a better snapshot of what the sales portion of the business looks like. In 2010 and 2011, the business was producing more than they were selling. This created a higher break-even point which was not met either year. In 2012, since there wasn’t as much produced, there was a lower break-even point and Renton sold 808 units over the break-even point. This level of sales helped to create a contribution margin of 73%, a 21% increase from 2012.
Not only was 2012 the most profitable year Renton has seen since they have been in business, it was the first year the company exceeded its break-even point in unit and dollar sales.
Zac Dalton is correct in his claims that operations have improved. The company is doing better in unit sales and contribution margin has increased dramatically since he has taken over the business.
However, since they sold through their entire inventory, he will have to be sure not to have a repeat of 2010 and continue to increase sales in order to break even in 2013.

Sincerely,

Rebecca Silva, Accounting Student

Analysis for Renton Tractor Company 2010-2012 RevenueVECMUnit CMFEF S&ANOI/L | 2010$1,000,000500,000500,000$250/Unit600,000200,000(300,000) | %50%50% | 2011$1,250,000600,000650,000$260/Unit600,000200,000(150,000) | %48%52% | 2012$1,500,000400,0001,100,000$367/Unit600,000200,000$300,000 | %27%73% |

Break-Even Point (In Dollars) 2010$800,000 / 50%= $1,600,000 | 2011$800,000 / 52%= $1,538,462 | 2012$800,000 / 73%= $1,095,890 |

Break-Even Point (In Units) 2010$1,600,000 /500= 3200 Units2000-3200= (1200) short of amount needed to break even | 2011$1,538,462 /500=3077 Units2500-3077=(577) short of amount needed to break even | 2012$1,095890 /500= 2192 Units3000-2192=808 units over amount needed to break even |

Unit CM 2010$500,000/2000= $250 | 2011$650,000/2500= $260 | 2012$1,100,000/3000= $367 |

Net Operating Income or Loss (1200) * $250($300,000)Net Operating Loss | (577) * $260($150,000)Net Operating Loss | 808 * $367$296,536Net Operating Income |