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Hallstead Jewelers

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Hallstead Jewelers
Except COGS and Commission which are variable costs, all others are fixed costs.
All in thousands of dollars (except sales tickets) 2003 2004 2006
Variable Cost (VC) 4755 4537 6106
Fixed Cost (FC) 3250 3353 5011
Average sales ticket price 1.607 1.524 1.553
Sales tickets (in nos.) 5,341 5,316 6,897
Variable Cost per sales ticket 0.9 0.9 0.9
Breakeven Qty 4,535 5,001 7,506
Breakeven Sales = Breakeven Qty x average sales ticket price
Breakeven Sales 7,287 7,621 11,655
Margin of Safety = Sales in excess of the breakeven sales
Sales 8,583 8,102 10,711
Margin of Safety (sales dollar) 1,296 481 (944)
Margin of Safety (sales tickets) 806 315 (609)
The major cause of the increase in breakeven quantities and sales, and the decrease of margin of safety is the sharp increase of fixed cost by nearly 50% in 2006 from 2004, relative to increase of sales tickets (QTY) by 30%. The nominal increase in ticket sales is significant but simply not enough to off set the greater increase in fixed costs. Furthermore, price of goods sold remained stagnant over the same period. 2006 Post price reduction
Average sales ticket price 1.553 1.398
Sales tickets (in nos.) 6,897 7,500
Net Income (406) (634)
Variable Cost 6,106 6,640
Breakeven Qty 7,506 9,780
Breakeven Sales 11,655 13,669
Sales 10,711 10,483
Margin of Safety (sales dollar) (944) (3,186)
The approximate 9% increase in tickets sold will not offset the 10% decrease in price, due to the fact that a reduction in price has far greater impact on contribution per unit than quantity. A far greater percent increase in quantity will be needed to offset the 10% price decrease.

2006 Ex-Commission
Variable Cost 6,106 5,570
Variable Cost per sales ticket 0.9 0.8
Breakeven Qty 7,506 6,723
Breakeven Sales 11,655 10,440
Margin of Safety (sales dollar) (944) 271
By eliminating commission, the company can lower breakeven volume from 7505 to 6723 (QTY) which is
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