# Case Study Hallstead Jewelers

Decent Essays
Question 1
(Dollar values in thousands)

2003
2004
2006
Sales
\$8,583
\$8,102
\$10,711
Variable Costs

Cost of Goods Sold
\$4,326
\$4,132
\$5,570
Commissions
\$429
\$405
\$536
Total Variable Costs
\$4,755
\$4,537
\$6,106
Fixed Cost

Salaries
\$2,021
\$2,081
\$3,215
Advertising
\$254
\$250
\$257
Administrative Expenses
\$418
\$425
\$435
Rent
\$420
\$420
\$840
Depreciation
\$84
\$84
\$142
Miscellaneous Expenses
\$53
\$93
\$122
Total Fixed Cost
\$3,250
\$3,353
\$5,011

Breakeven point in number of sales tickets
Breakeven Point = Total Fixed Cost / (Contribution Margin/ Units)
2003 = \$3250 / (\$3828/5341) = 4535
2004 = \$3353 / (\$3565/5316) = 5000
2006 = \$5011 / (\$4605/6897) = 7505

Breakeven point in sales dollars
2003 = breakeven point in units* price per unit
=
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There would still be a net loss in 2006 due to the increase of break-even point, which increased from \$7,505 to \$8,640.

Question 3
(Dollar values in thousands)

With Sale Commissions
Without Sales Commissions
Sales Tickets
6,897
6,897
Sales/Units
\$1.55
\$1.55
VC/Units
\$0.89
\$0.81
Fixed Cost
\$5,011
\$5,011
Breakeven Point (Units)
7,505
6,772

Elimination of sales commision would affect the break-even volume to decrease, since the selling staff would have a lower incentive to sell due to having a cut of their commision salary. Eventually, this process would see a decrease in profit, since there would be no longer same selling jewellery incentive as before when the staff was paid in commissions. Therefore we strongly recommend to management to maintain selling commissions to to allow for an increased motivation, which would see an increased in the profit.

Question 4
(Dollar values in thousands)

Without Advertising Increase
With Advertising Increase
Sales Tickets
6,897
6,897
Sales/Unit
\$1.55
\$1.55
VC/Unit
\$0.89
\$0.89
Fixed Cost
\$5,011
\$5,211
Breakeven Point (Units)
7,505
7,895

Increasing fixed costs (advertising) by \$200,000 increases the breakeven point by \$200,000. I would recommend some increased advertising but perhaps not as drastic as nearly doubling their advertising spending. They are a known and established store so they don’t have to advertise to get their name out there, but advertising their ‘new, bigger