HALLSTEAD JEWELERS

Case Presentation

Presented by: Ronak Patel

Saurabh Kumar
Tofique Mirajkar
 Hallstead Jewelers; Income Statement for year ended January 31
2003 2004 2006
Sales $85,83,000 $81,02,000 $1,07,11,000
Cost of goods sold $43,26,000 $41,32,000 $55,70,000
Gross Margin $42,57,000 $39,70,000 $51,41,000
Expenses
Seling Expense
Salaries $20,21,000 $20,81,000 $32,15,000
Commissions $4,29,000 $4,05,000 $5,36,000
Advertising $2,54,000 $2,50,000 $2,57,000
Administrative expenses $4,18,000 $4,25,000 $4,35,000
Rent $4,20,000 $4,20,000 $8,40,000
Depreciation $84,000 $84,000 $1,42,000
Miscellaneous expenses $53,000 $93,000 $1,22,000
Total expenses $36,79,000 $37,58,000 $55,47,000
Net Income $5,78,000 $2,12,000 ($4,06,000)

Halstead Jewelers - Operating Statistics

Sales Space (square feet) 10,230 10,230 15,280
Sales per square foot $839 $792 $701
Sales tickets 5,341 5,316 6,897
Average sales ticket $1,607 $1,524 $1,553
Variable cost per ticket $810 $777 $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 company’s income be
increased? With prices reduced, what would be the new breakeven point in sales tickets and sales tickets?

2006
2006
Income Statement
10% Decrease in Sales Price
Sales $1,07,11,000 $1,04,82,750
Cost of goods sold $55,70,000 $60,56,981
Gross Margin $51,41,000 $44,25,768
Expenses
Seling Expense
Salaries $32,15,000 $32,15,000
Commissions $5,36,000 $5,36,000
Advertising $2,57,000 $2,57,000
Administrative expenses $4,35,000 $4,35,000
Rent $8,40,000 $8,40,000
Depreciation $1,42,000 $1,42,000
Miscellaneous expenses $1,22,000 $1,22,000
Total expenses $55,47,000 $55,47,000
Net Income ($4,06,000) ($6,34,250)
With a 10% decrease in sales price the new 2006
Breakeven 2006
Contribution Margin would be less than original
Sales Tickets: 9,400 2006 Contribution Margin and thus the net
Sales Dollars: $1,31,38,467 income would be reduced. More sales would
need to occur to breakeven in this scenario.
Question3: Eliminating sales commission

2006
2006
Income Statement
No Commission
Sales $1,07,11,000 $1,07,11,000
Cost of goods sold $55,70,000 $55,70,000
Gross Margin $51,41,000 $51,41,000
Expenses
Seling Expense
Salaries $32,15,000 $32,15,000
Commissions $5,36,000 $0
Advertising $2,57,000 $2,57,000

Administrative expenses $4,35,000 $4,35,000

Rent $8,40,000 $8,40,000
Depreciation $1,42,000 $1,42,000

Miscellaneous expenses $1,22,000 $1,22,000

Total expenses $55,47,000 $50,11,000
Net Income ($4,06,000) $1,30,000

2006 - No Breakeven volume would go down by 719

Breakeven
2006 - Original Commission
sales tickets and sales to breakeven would
Sales Tickets: 6,897 6,723
decrease by $1,116,723.
Sales Dollars: $1,07,11,041 $1,04,40,109
Question4: Effect of increased advertising on breakeven point

2006
Income Statement 2006
Increase Advertising
Sales $1,07,11,000 $1,07,11,000
Cost of goods sold $55,70,000 $55,70,000
Gross Margin $51,41,000 $51,41,000
Expenses
Seling Expense
Salaries $32,15,000 $32,15,000
Commissions $5,36,000 $5,36,000
Advertising $2,57,000 $4,57,000
Administrative expenses $4,35,000 $4,35,000
Rent $8,40,000 $8,40,000
Depreciation $1,42,000 $1,42,000
Miscellaneous expenses $1,22,000 $1,22,000
Total expenses $55,47,000 $57,47,000
Net Income ($4,06,000) ($6,06,000)
2006 - Breakeven volume would go up by 813 sales
Breakeven Increase tickets and sales to breakeven would increase
2006 - Original Advertising
by $1,262,478. I would not recommend this
Sales Tickets: 6,897 7,710
Sales Dollars: $1,07,11,041 $1,19,73,519 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