CASE: Hallstead Jewelers
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 cost increased but contribution margin per unit decrease, so the breakeven point had increased in a number of 465. Besides, their sales numbers decreased in 2004, so their margin of safety dropped from 15% to 6%. Hallstead Jewelers had expanded their sales space in 2006, so their fix cost had a dramatically increase. Since their contribution margin had not much changed, the breakeven point increased a lot in 2006. Although their sales numbers also increased, comparable lower than the increase of breakeven point, their margin of safety dropped to “-9%” at the end of 2006.
Please see Excel Sheet Answer 1 for details.
2) One idea that the consultant had was to reduce prices to bring in more customers. If average prices were reduced ten percent (10%), and the number of sales tickets (unit sales) increased to 7,500, would the company's income be increased? With prices reduced, what would be the new breakeven point in sales tickets and sales dollars?
The company’s income would not increase for this sales policy. Actually, there would be an income loss of $1,168,093 in this policy, $762,093 more than the original one.
With price reduced, the new breakeven point in sales tickets would be 9,780 and breakeven point in
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 cost increased but contribution margin per unit decrease, so the breakeven point had increased in a number of 465. Besides, their sales numbers decreased in 2004, so their margin of safety dropped from 15% to 6%. Hallstead Jewelers had expanded their sales space in 2006, so their fix cost had a dramatically increase. Since their contribution margin had not much changed, the breakeven point increased a lot in 2006. Although their sales numbers also increased, comparable lower than the increase of breakeven point, their margin of safety dropped to “-9%” at the end of 2006.
Please see Excel Sheet Answer 1 for details.
2) One idea that the consultant had was to reduce prices to bring in more customers. If average prices were reduced ten percent (10%), and the number of sales tickets (unit sales) increased to 7,500, would the company's income be increased? With prices reduced, what would be the new breakeven point in sales tickets and sales dollars?
The company’s income would not increase for this sales policy. Actually, there would be an income loss of $1,168,093 in this policy, $762,093 more than the original one.
With price reduced, the new breakeven point in sales tickets would be 9,780 and breakeven point in