Hallstead Jewelers

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Report for Hallstead Jewelers

Hallstead Jewelers is a jewelry merchandiser, which sells range from fine jewelry, gems to tabletop gifts. It has been established for 83 years and once has become one of the largest jewelry retailers in the past. With the changing of retail jewelry industry, it has appeared two competitive competitors: Tiffany & company, which was the largest diamond seller in the US and be known as their “blue box”, and Blue Nile, which found online and was the second diamond seller in the US. However, unfortunately the sales and profits of Hallstead have been fallen since 1999. Moreover, they experienced losses in the 2006 although they have taken the action to expand their business and moved to the principle shopping area.

The reason for the losses is that by adopting actual costing system, Hallstead had never budgeted their fixed-cost which should be allocated. From the Exhibit 1, we can see that the rent and salaries are increased significantly compared with the figure in last two years. Especially the rent already doubled compared with last year. Whereas other figures like advertising and administration fee almost the same as the prior year. This implied that these two fixed-cost are the main contribution to the losses. In fact, moved to the new location cannot boost the enough profits. From Exhibit 2, in the 2003 and 2004, the sales space is 10230 square feet, and the sales per square foot are $839 and $729 respectively. However, in the 2006, the sales space increased to 15280 square feet but the sales per square foot decreased to $701. It means that there is more space than they needed. In other words, the space cannot make profits they expected but increased the fixed cost. At the mean time, with the expansion of space, the more staff or sales person are needed. Thus the salaries expense has been raised near to 50%($3215). This causes that the gross margin has to cover more fixed cost. In total, the contribution margin is not...
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