Halstead Jewelers Case Study Analysis In Education

CASE: Hallstead Jewelers

1) How has the breakeven point in number of sales tickets (number of customer orders written) and breakeven in sales dollars changed from 2003, to 2004, and to 2006? How has the margin of safety changed? What caused the changes?

The Breakeven point in number of sales tickets were “4,535”, “5,000” and “7,505” in 2003, 2004 and 2006. The Breakeven in sales dollars for the three years were “$7,287,043”, “$7,620,696” and “$11,655,277” respectively. While the margin of safety changed from “15%”, “6%” to “-9%” within these years.

“Fixed cost”, “Variable cost”, “Contribution margin per unit”, “Selling price” and “Budgeted sales” is all factors caused these changes. From 2003 to 2004, Hallstead Jewelers’ fix…show more content…

If the fixed cost remained the same in 2007 as it was in 2006, and we assume there was not change in sales volume, then the average sales ticket have to increase $59 to breakeven point, at a Sales price per unit of &1,612.

Please see Excel Sheet Answer 5 for details.

6) What do you recommend that the managers at Hallstead Jewelers do?

For all the suggestions the consultants recommended, I would like to choose the elimination of sales commission. Because it was an effective way to reduce cost and bring more net income in short term. Since the breakeven point dropped with this method, we would not suffer a loss. In addition, we would like to have a no-pressure, no-commission sales force without any conflict or personal bias that could cause our salespersons to push higher-margin items for their own benefit.

However, as an advisor for the managers at Hallstead Jewelers, I would like to recommend more strategies to help Hallstead Jewelers gain a long term benefits. Since the gross margin will contribute a lot to net income, improve the sales revenue and reduce cost of goods sold are necessary. We need to build a strong sales growth in the near future, and to expand our market share both domestically and internationally. We could offer a variety of education, quality, and selection to our customers. Besides, we could continue to expand our service to the customer both in terms of technology

Halstead Jewelers Income Statements 2003 2004 2006 Sales $8,583,000 $8,102,000 $10,711,000 Cost of goods sold $4,326,000 $4,132,000 $5,570,000 Gross Margin $4,257,000 $3,970,000 $5,141,000 Expenses Seling Expense Salaries $2,021,000 $2,081,000 $3,215,000 Commissions $429,000 $405,000 $536,000 AdverTsing $254,000 $250,000 $257,000 AdministraTve expenses $418,000 $425,000 $435,000 Rent $420,000 $420,000 $840,000 DepreciaTon $84,000 $84,000 $142,000 Miscellaneous expenses $53,000 $93,000 $122,000 ±otal expenses $3,679,000 $3,758,000 $5,547,000 Net Income $578,000 $212,000 ($406,000) Halstead Jewelers - OperaTng StaTsTcs Sales Space (square feet) 10,230 10,230 15,280 Sales per square foot $839 $792 $701 Sales Tckets 5,341 5,316 6,897 Average sales Tcket $1,607 $1,524 $1,553 Variable cost per Tcket $810 $777 $808 Queston1 2003 2004 2006 Sales ±ickets: 4,616 5,033 7,442 # Tckets = (proFt - ±²C)/(SP-VC) Sales Dollars: $7,417,643 $7,669,759 $11,556,831 sales =breakeven Tckets * Average Sales ±icket Notes. Margin of SafeTy 2003 2004 2006 Margin of Safety = expected sales - breakeven sales Expected Sales $8,583,000 $8,583,000 $12,874,500 Breakeven Sales: $7,669,759 $11,556,831 Margin of Safety: $913,241 $1,317,669 Queston 2. Details 2006 Sales ±ickets: 6,897 7,500 Sales Price $ 1,397.70 Average sales Tcket: $1,553 $1,398 @ 10% decrease Unit Sales 7,500 Variable cost per Tcket: $808 $808 Sales Revenue $ 10,482.75 Halstead Jewelers Cost of good sold $ 6,056.98 Incremental Analysis Contribution Margin $ 4,425.77 Sales $10,711,000 $10,482,750 ($228,250) Other Expenses Cost of goods sold $5,570,000 $5,570,000 $0 Salaries $ - Gross Margin $5,141,000 $4,912,750 ($228,250) Commission $ - Expenses Advertise expenses $ - Seling Expense Administrative expense $ 200,000.00 Salaries $3,215,000 $3,215,000 $0 Miscellaneous expenses $ - Commissions $536,000 $536,000 $0 Rent $ - AdverTsing $257,000 $257,000 $0 Depreciation $ - AdministraTve expenses $435,000 $435,000 $0 Total Other Expenses $ 200,000.00 Rent $840,000 $840,000 $0 DepreciaTon $142,000 $142,000 $0 Net Income ÷ (Loss) $ (195,574.23) Miscellaneous expenses $122,000 $122,000 $0

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