Hallstead Jewelers Case Study

Topics: Variable cost, Contribution margin, Cost Pages: 2 (584 words) Published: April 8, 2013
Background description
Hallstead Jewelers is a large retailer specializing in jewelry and gift. It was started up as a family business and has gained reputation through their 83 years history. Hallstead provides customers with extensive collections of products, including jewelry, gems, watches, tabletop and artistic gifts, by its four sales departments. However, the market place of Hallstead was challenged as the emergence of nearby modernized shopping center which has impacted customers’ consumption choices and habits. Another threat to this old store is from industry competitors leading by Tiffany&Co. and Blue Nile. The former has grown into international powerhouse contributed by its unique products differentiation strategy known as “blue boxes”. The latter has taken the advantage of cost leadership strategy and convenience brought by internet development. With respond to these significant changes in industry condition and competitive environment, the sisters, who are grandchildren of Hallstead’s founder, worked as managers and made the decision of massive modernization and expansion.

Problems and issues
The major problem Hallstead encountered is declining sales and profit. Moreover, the expansion plan against this situation failed to make the company return to profitability. On the contrary, it brought worsen consequence of net loss at the end of the fiscal year. After the application of CPV analysis, the reason fell on the internal cost side. It can be seen in the short run that Hallstead’ variable cost (VC) contains COGS and Commission while fixed cost (FC) consists of Salary, Advertising, Administration, Rent, Depreciation and Miscellaneous expense. Breakeven point (BEP) is the output level at which revenue equals cost, expressing as ‘BEP($)-VC-FC=0’. Subsequently, the equation can be interpreted as ‘BEP(units)=FC/(Sell price-VC per unit)’. So the BEP units continuously increased from 4535 to 7505 accompanied by proportional growth of BEP revenue...
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