Case Study Hallstead Jewelers

Question 1
(Dollar values in thousands)

2003
2004
2006
Sales
$8,583
$8,102
$10,711
Variable Costs

Cost of Goods Sold
$4,326
$4,132
$5,570
Commissions
$429
$405
$536
Total Variable Costs
$4,755
$4,537
$6,106
Fixed Cost

Salaries
$2,021
$2,081
$3,215
Advertising
$254
$250
$257
Administrative Expenses
$418
$425
$435
Rent
$420
$420
$840
Depreciation
$84
$84
$142
Miscellaneous Expenses
$53
$93
$122
Total Fixed Cost
$3,250
$3,353
$5,011

Breakeven point in number of sales tickets
Breakeven Point = Total Fixed Cost / (Contribution Margin/ Units)
2003 = $3250 / ($3828/5341) = 4535
2004 = $3353 / ($3565/5316) = 5000
2006 = $5011 / ($4605/6897) = 7505

Breakeven point in sales dollars
2003 = breakeven point in units* price per unit
= 4535*$1607=$7287745
2004 = 5000*$1524=$7620000
2006 = 7505*$1553=$11655265

Margin of safety in %
2003 = (Budgeted Sales - Breakeven Point in Dollars)/ Budgeted Sales
= ($8583000-$7287745) / $8583000 = 15.09%
2004 = ($8102000-$7620000) / $8102000 = 5.95%
2006 = ($10711000-$11655265) / $10711000 = -8.82%
From the calculations, the breakeven point in units of Hallstead Jewelers is increasing from 2003 to 2004; started from 4558360 to 7505070; while the breakeven point in sale dollars also increased from 7325284.5 to 11655373. The biggest possibility of the increase may be the moving and renovation of the store. The expansion attracted more customers and purchases to cover its increase of the costs. The margin of safety has declined a lot from 14.7% to -8.8%. The company kept losing money from 2003 to 2006. Question 2
(Dollar values in thousands)

2003
2004
2006
Old Average Sales ticket
$1,607
$1,524
$1,553
New Average Sales ticket
$1,446
$1,372
$1,398
Sales ticket
7,500
7,500
7,500
New Sales revenue
$10,847
$10,827
$10,483
New Contribution Margin
$6,092
$5,750
$4,377
New Contribution Margin/Unit
$0.81
$0.77
$0.58
New Break-Even Point
4,013
4,355
8,640

If Hallstead Jewelers can actually reduce its price by 10%, and increase it’s the