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.

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)]

 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.

Breakeven
 2003
 2004
 2006
Sales ticket
 4.535
 5,001
 7,505
Sales Dollar
 $728774,00
 $7621524,00
 11655265,00

Respond to the question 2.
 Decrease sales by 10%
 Sales tickets increased to 7500
 Breakeven point in ticket and sales?

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

Respond to the question 3
 Eliminating sales commission
 How would this affect Breakeven volume?

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

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.

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

 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
$

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.