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1. Hallstead Jewelers  Family-owned business, established 1924  Sold fine jewelry, gems, watches, tabletops and artistic gifts  Only store in the city to provide sales commissions  The profit of the company started to decline since 1999 due to the changes in the retail landscape  They moved to a different location in order to improve the sales  Managed by the grandfather of the two sister until 1974  Profit declining since 1999  Sisters inherited the business in 2002  In 2006, start their business in the new location  In 2007 the income statement for the fiscal 2006 shows a disappointing result.
2. Respond to the question 1.  Breakeven sales = Total Fixed Costs/(Price-Unit Variable Cost)  Break-Even Sales in # of Ticket Sold = (Total Expenses – commissions(1000))/[Average sales ticket in \$)(Cost of Goods Sold(1000)/# of Sales Tickets + Commissions (1000)/# of sales tickets)]
3.  Comparing the breakeven amounts you can see that the margin of safety has completely diminished due to increased costs, the drop in average ticket sales, and the amount needed to break even. Average sales per ticket decreased in 2004 causing the breakeven in both sales tickets and total sales to increase.  The averages sales per ticket increased marginally from 2004 - 2006 it was not enough to cover the additional fixed costs due to 50% increase in staff and space (rent) in new location.
4. Breakeven  2003  2004  2006 Sales ticket  4.535  5,001  7,505 Sales Dollar  \$728774,00  \$7621524,00  11655265,00
5. Respond to the question 2.  Decrease sales by 10%  Sales tickets increased to 7500  Breakeven point in ticket and sales?
6. Details 2006 Sales price 1397,70 Unit Price 7500 Sales revenue 10482,75 Cost of Goods sold 6056,98 Contribution Margin 4425,77 Other expenses Salaries Commission Advertising expenses Administration expenses 200 000.00 Rent Depreciation Total other expenses 200 000.00 Net Income /(Loss) 195574.23 Contribution margin Ratio 42% Break-Even Point in dollars 473714.32
7. Respond to the question 3  Eliminating sales commission  How would this affect Breakeven volume?
8. Details 2006 Sales 10711.00 Variable expenses Cost of goods sold 5570.00 Contribution margin 5141.00 Other expenses Salaries 3215.00 Advertising expenses 257.00 Administrative expenses 435.00 Miscellaneous expenses 122.00 Rent depreciation 840.00 Total other expenses 5011.00 Net Income 130.00 Contribution Margin Ratio 48% Breakeven point in dollars 10440.15 BEP in ticket sales 6723
9. Respond to the question 4. If Hallstead Jewelers increased the amount spent for advertising by \$200,000, the break-even point would increase. It should be recommend that the two sisters stop paying out sales commissions and increase advertising by \$200,000. This change would result in the net profit or loss during 2007.
10. Details 2006 Sales 10711.00 Variable expenses Cost of goods sold 5570.00 Contribution margin 5141.00 Other expenses Salaries 3215.00 Commission 536.00 Advertising expenses 457.00 Administrative expenses 435.00 Miscellaneous expenses 122.00 Rent depreciation 840.00 Total other expenses 5747.00 Net Income 606.00 Contribution Margin Ratio 48% Breakeven point in dollars 11973.57 BEP in ticket sales 7710
11.  If the fixed costs remained the same in 2007 as it was in 2006, the managers would need to raise the average sales tickets by \$59 from \$1,553 to \$1,612. It’s almost impossible to do this because sales have declined and competition is strong. Sales in unit 6,897.00 \$ Variable expense 5,570.00 \$ Fixed expense 5,547.00 \$ Total Expense 11,117.00 \$ New Price 1,611.86 \$
12. It is recommended that Hallstead Jewelers managers to implement some of the recommendation to increase its sales beyond 7,500 units so that it can make a profit. If the company is not able to increase its sales in this way, the managers should find a way to minimize fixed costs in order to avoid taking a loss.
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