1. Hudson Jewelers' current layout displays jewelry designs from the CAD system on a screen in the front of the store. However, customers have little privacy when designing jewelry there. What are the economic and non-economic advantages and disadvantages of the following options: (a) keep the current layout; (b) move the CAD system into a new private room; and (c) use option (b), buy a second CAD system, and build another private room. Data are provided in the case study.

(a) Keep the Current Layout

Fixed Cost = $5,000 based on CAD square footage to total store square footage.

Variable Cost = $0.20 cents per customer visit ($2,620/year divided by 13,104 visits/year) to update CAD software, insurance, maintenance, and employee CAD training.

(b) Move Current CAD into a Single New Private Design Room

Fixed Cost = $12,000 to build a new CAD design room inside store and move current CAD system to the new room and furnish.

Variable Cost = $0.24 cents per visit ($3,145/13,104) to update CAD software, insurance, maintenance, and employee CAD training, and room stereo speaker and music, fire sprinkler maintenance, and lighting in the design room.

Option II frees up 49 square feet of store space for one additional front room jewelry display case but decreases the space for comfortable leather chairs by one-half, so there would be space for only one chair plus the wine rack.Fourteen square feet of extra display space would be available in the store.Based on last year's revenue, each square foot of jewelry display space generated $30,090.

(c) Do Option b Plus Build a Second CAD Design Room & Buy a Second CAD System

Fixed Cost = $27,000 to build two new CAD design rooms inside the store and move current CAD system into one new room, and buy a second new CAD system and install in the second room.

Variable Cost = $0.38 cents per visit ($4,980/13,104) to update two CAD software, insurance, maintenance, and employee CAD training, and two room stereo speakers and music, two fire sprinklers maintenance, and lighting in the two design rooms.

Option III frees up 49 square feet of store space for one additional front room jewelry display case but eliminates the space for the wine rack or any comfortable leather chair(s).The space currently dedicated to the wine rack and two leather chairs plus the CAD system, desk, and chair located in the front room is now two private CAD design rooms.