Basic information
Exhibit 1 Hallstead Jewelers
Income Statements for Years Ended January 31 (thousands of dollars)
	2003	2004	2006
Sales	$9,000,000	$8,000,000	$11,000,000
Cost of goods sold	4,050,000	3,600,000	4,950,000
Gross margin	$4,950,000	$4,400,000	$6,050,000
Expenses
Selling expense
Salaries	2,021,000	2,081,000	4,085,000
Commissions	450,000	400,000	550,000
Advertising	254,000	250,000	257,000
Administrative expenses	418,000	425,000	535,000
Rent	420,000	420,000	840,000
Depreciation	84,000	84,000	142,000
Miscellaneous expenses	53,000	93,000	122,000
Total expenses	$3,700,000	$3,753,000	$6,531,000
Net income	$1,250,000	$647,000	$(481,000)
Exhibit 2 Hallstead Jewelers Operating Statistics
	2003	2004	2006
Sales space (square feet)	10,000	10,000	15,000
Sales per square foot	$900	$800	$733
Sales tickets	5,000	5,000	7,000
Average sales ticket	$1,800	$1,600	$1,571

Assumptions:

Sales price per ticket = $1,572

Variable cost per unit = $786 (cost of goods sold of $707 + Sales commissions of $79)

Complete the table below:

Alternative #1	Per unit	Total	Per unit	Total
# of sales tickets	7000
Selling price per ticket	$1,572	$11,000,000
Variable cost per ticket	$786	$5,500,000
Contribution margin per ticket	$786	$5,500,000
Total fixed costs	5,981,000
Net income	$(481,000)
Change in net income if accept alternative
Breakeven point in units	7,610

Review of Question #4 requirements. Increase advertising by $20,000, increase sales revenue (volume) by 2%.

For each question, answer yes or no for each piece of information listed.

Information	For this alternative only, is there a change in this item that affects calculation of net income? Yes or No	For this alternative only, is there a change in this item that effects the calculation of the new breakeven point? Yes or No
Selling price per unit
Variable cost per unit
Total fixed costs
Net income
Sales volume

Complete the table below:

Alternative #3	Per unit	Total	Per unit	Total
# of sales tickets	7000
Selling price per ticket	$1,572	$11,000,000
Variable cost per ticket	$786	$5,500,000
Contribution margin per ticket	$786	$5,500,000
Total fixed costs	5,981,000
Net income	$(481,000)
Change in net income if accept alternative
Breakeven point in units	7,610

Alternatives	Change in Net Income	New Breakeven point in units	Change in Breakeven point in units
#1 Decrease SP, Increase sales volume
#2 Eliminate sales commissions	Increases by $550,000	6,914	Decreases by 696
#3 increase Fixed costs by $20,000 to get increase of 2% sales revenue (volume)