Hallstead Jewelers Case
1. From 2003 to 2006, the breakeven point in number of sales and breakeven point in sales dollars has increased. The breakeven point in number of sales tickets has gone from 7,608 units to 8,309 units to 12,687 units. While the breakeven point in sales dollars has gone from $6,976,536 to $7,286,993 to $12,440,061. The margin of safety decreased from 2003 to 2006. This increase is due to an increase in fixed costs (salaries, rent, etc.) and a decrease in variable costs (cost of goods sold and commissions). 2. If the average prices were reduced and the number of sales tickets increased to 7,500 then the company’s income would not increase. The new breakeven point would be more than the previous ones. 3. The breakeven volume after eliminating commission would decrease. This would mean that it would take fewer units for the company to break zero. 4. If the sisters increased advertising by $200,000, the breakeven point would increase. They should not increase their advertising expenses because it would take longer for them to break even. 5. The average sales ticket would have to increase by$500 (in the thousands) in order to breakeven if the fixed costs remain the same in 2007 as 2006. 6. I think the managers at Hallstead Jewelers should cut commissions because it would decrease their breakeven volume. I also think that they should not increase advertising expenses, because this would increase their breakeven volume which would further inhibit them from breaking zero.
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