HALLSTEAD JEWELERS

Case Presentation

Presented by: Ronak Patel

Saurabh Kumar
Tofique Mirajkar

Hallstead Jewelers; Income Statement for year ended January 31

Sales
Cost of goods sold
Gross Margin
Expenses
Seling Expense
Salaries
Commissions
Advertising
Administrative expenses
Rent
Depreciation
Miscellaneous expenses
Total expenses
Net Income

Sales Space (square feet)

Sales per square foot
Sales tickets
Average sales ticket
Variable cost per ticket

2003
$85,83,000
$43,26,000
$42,57,000

2004
$81,02,000
$41,32,000
$39,70,000

2006
$1,07,11,000
$55,70,000
$51,41,000

$20,21,000
$4,29,000
$2,54,000
$4,18,000
$4,20,000
$84,000
$53,000
$36,79,000
$5,78,000

$20,81,000
$4,05,000
$2,50,000
$4,25,000
$4,20,000
$84,000
$93,000
$37,58,000
$2,12,000

$32,15,000
$5,36,000
$2,57,000
$4,35,000
$8,40,000
$1,42,000
$1,22,000
$55,47,000
($4,06,000)

Halstead Jewelers - Operating Statistics

10,230
10,230
$839
$792
5,341
5,316
$1,607
$1,524
$810
$777

15,280
$701
6,897
$1,553
$808

Question1: How has the breakeven point in number of sales tickets and breakeven
in sales dollars changed from 2003, to 2004, and to 2006? How was the margin of
safety changed? What caused the changes

Breakeven

2003

2004

2006

Sales Tickets:

4,616

5,033

7,442

Sales Dollars:

$74,17,912

$76,70,292

$1,15,57,426

Margin of Safety

2003

2004

2006

Actual Sales

$85,83,000

$81,02,000

$1,07,11,000

Breakeven Sales:

$74,17,912

$76,70,292

$1,15,57,426

Margin of Safety:

$11,65,088

$4,31,708

($8,46,426)

Question2: One idea that the consultant had was to reduce prices to bring in more customers. If average
prices were reduced 10% and the number of sales tickets increased to 7500, would the companys income be
increased? With prices reduced, what would be the new breakeven point in sales tickets and sales tickets?
2006
Income Statement

2006
10% Decrease in Sales Price
$1,07,11,000
$1,04,82,750
$55,70,000
$60,56,981
$51,41,000
$44,25,768

Sales
Cost of goods sold
Gross Margin
Expenses
Seling Expense
Salaries
Commissions
Advertising
Administrative expenses
Rent
Depreciation
Miscellaneous expenses
Total expenses
Net Income
Breakeven
Sales Tickets:
Sales Dollars:

$32,15,000
$5,36,000
$2,57,000
$4,35,000
$8,40,000
$1,42,000
$1,22,000
$55,47,000
($4,06,000)

$32,15,000
$5,36,000
$2,57,000
$4,35,000
$8,40,000
$1,42,000
$1,22,000
$55,47,000
($6,34,250)

With a 10% decrease in sales price the new 2006

Contribution Margin would be less than original
9,400 2006 Contribution Margin and thus the net
$1,31,38,467 income would be reduced. More sales would
need to occur to breakeven in this scenario.

2006

Question3: Eliminating sales commission

2006
Income Statement
$1,07,11,000
$55,70,000
$51,41,000

2006
No Commission
$1,07,11,000
$55,70,000
$51,41,000

$32,15,000
$5,36,000
$2,57,000

$32,15,000
$0
$2,57,000

Administrative expenses
Rent
Depreciation

$4,35,000
$8,40,000
$1,42,000

$4,35,000
$8,40,000
$1,42,000

Miscellaneous expenses
Total expenses
Net Income

$1,22,000
$55,47,000
($4,06,000)

$1,22,000
$50,11,000
$1,30,000

Sales
Cost of goods sold
Gross Margin
Expenses
Seling Expense
Salaries
Commissions
Advertising

Breakeven
Sales Tickets:
Sales Dollars:

2006 - No
2006 - Original Commission
6,897
6,723
$1,07,11,041 $1,04,40,109

Breakeven volume would go down by 719

sales tickets and sales to breakeven would
decrease by $1,116,723.

Question4: Effect of increased advertising on breakeven point

2006
Income Statement
Sales
Cost of goods sold
Gross Margin
Expenses
Seling Expense
Salaries
Commissions
Advertising
Administrative expenses
Rent
Depreciation
Miscellaneous expenses
Total expenses
Net Income
Breakeven
Sales Tickets:
Sales Dollars:

2006 Increase
2006 - Original Advertising
6,897
7,710
$1,07,11,041 $1,19,73,519

$1,07,11,000
$55,70,000
$51,41,000

2006
Increase Advertising
$1,07,11,000
$55,70,000
$51,41,000

$32,15,000
$5,36,000
$2,57,000
$4,35,000
$8,40,000
$1,42,000
$1,22,000
$55,47,000
($4,06,000)

$32,15,000
$5,36,000
$4,57,000
$4,35,000
$8,40,000
$1,42,000
$1,22,000
$57,47,000
($6,06,000)

Breakeven volume would go up by 813 sales

tickets and sales to breakeven would increase
by $1,262,478. I would not recommend this
option.

Question5: How much would the average sales ticket have to increase to breakeven
if the fixed cost remained the same in 2007 as it was in 2006?

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

Question6: What do you recommend that the managers at Hallstead jewelers do?

Try to increase sales beyond 7442 units.

Or
Cut down on some fixed cost

Or
Explore the option of increase in average sales ticket

price.

Thank you