CASE: Hallstead Jewelers

1) How has the breakeven point in number of sales tickets (number of customer orders written) and breakeven in sales dollars changed from 2003, to 2004, and to 2006? How has the margin of safety changed? What caused the changes?

The Breakeven point in number of sales tickets were “4,535”, “5,000” and “7,505” in 2003, 2004 and 2006. The Breakeven in sales dollars for the three years were “$7,287,043”, “$7,620,696” and “$11,655,277” respectively. While the margin of safety changed from “15%”, “6%” to “-9%” within these years.

“Fixed cost”, “Variable cost”, “Contribution margin per unit”, “Selling price” and “Budgeted sales” is all factors caused these changes. From 2003 to 2004, Hallstead Jewelers’ fix
If the fixed cost remained the same in 2007 as it was in 2006, and we assume there was not change in sales volume, then the average sales ticket have to increase $59 to breakeven point, at a Sales price per unit of &1,612.

Please see Excel Sheet Answer 5 for details.

6) What do you recommend that the managers at Hallstead Jewelers do?

For all the suggestions the consultants recommended, I would like to choose the elimination of sales commission. Because it was an effective way to reduce cost and bring more net income in short term. Since the breakeven point dropped with this method, we would not suffer a loss. In addition, we would like to have a no-pressure, no-commission sales force without any conflict or personal bias that could cause our salespersons to push higher-margin items for their own benefit.

However, as an advisor for the managers at Hallstead Jewelers, I would like to recommend more strategies to help Hallstead Jewelers gain a long term benefits. Since the gross margin will contribute a lot to net income, improve the sales revenue and reduce cost of goods sold are necessary. We need to build a strong sales growth in the near future, and to expand our market share both domestically and internationally. We could offer a variety of education, quality, and selection to our customers. Besides, we could continue to expand our service to the customer both in terms of technology