Essay on Hallstead Jewelers Case Analysis

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Hallstead Jewelers Managerial Accounting ACCT 2301 – Case Analysis 1 September 29, 2010 Melissa Ng Variable costs are made up of cost of goods sold plus sales commissions. Fixed costs are made up of salaries, advertising, administrative expenses, rent, depreciation, and miscellaneous expenses. Assuming all questions are answered independently: 1. Income statement using the contribution approach: | 2004 | 2005 | 2007 | Sales | $8,583,000 | $8,102,000 | $10,711,000 | Less: Variable Costs | $4,669,000 | $4,456,000 | $5,998,000 | Contribution Margin | $3,914,000 | $3,646,000 | $4,713,000 | Less: Fixed Costs | $3,180,000 | $3,283,000 | $4,971,000 | Net Income | $734,000 | $363,000 |…show more content…
New income statement using the contribution approach: | 2004 | 2005 | 2007 | Sales | $8,583,000 | $8,102,000 | $10,711,000 | Less: New variable cost | $4,326,000 | $4,132,000 | $5,570,000 | Contribution margin per unit | $4,257,000 | $3,970,000 | $5,141,000 | Less: Fixed Costs | $3,180,000 | $3,283,000 | $4,971,000 | Net Income | $1,077,000 | $687,000 | $170,000 | Variable costs only consist of cost of goods sold as sales commissions are eliminated. The new break-even point in units and dollars: | 2004 | 2005 | 2007 | Sales per unit | $916 ($8,583,000 /9,367) | $877 ($8,102,000/9,240) | $891 ($10,711,000/12,028) | Variable cost per unit | $462 ($4,326,000/9,367) | $447 ($4,132,000/9,240) | $463 ($5,570,000/12,028) | Contribution margin per unit | $454.47 | $429.65 | $427.42 | Break-even in units | 6,997 ($3,180,000/$454) | 7,641 ($3,283,000 x $430) | 11,630 ($4,971,000 x $427) | Break-even in dollars | $6,411,543 ($916 x 6,997) | $6,699,966 ($877 x 7,641) | $10,356,814 ($891 x 11,630) | Eliminating sales commissions has a positive affect overall. The company requires fewer units to be sold in order to break even. In other words, the break-even in units decreases compared to the original income statement in question 1. It is also important to note that variable costs particularly affected 2007. Without the elimination of sales

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