Question for case: Hallstead Jewelers
- Another idea that Gretchen has was to eliminate the sales commissions. Hallsteads was the only jewelry store in the city that paid sales commissions, and although both Grandfather and Father had insisted that commissions were one of the reasons for their success, Gretchen had her doubts. How would the elimination of sales commissions affect the breakeven volume?
- Michaela felt that a bigger store could benefit from greater advertising and suggested that they increase the advertising by $200,000. How would this affect the breakeven point? Would you recommend that the sisters try this?
Hallstead Jewelers Case Exhibits Exhibit 1 Hallstead Jewelers Income Statements, for year ended Jan 31 (in '000s) 2003 2004 2006 Sales $ 8,583 $ 8,102 $ 10,711 Less: COGS 4,326 4,132 5,570 Gross margin $ 4,257 $ 3,970 $ 5,141 Expenses Salaries 2,021 2,081 3,215 Commissions 429 405 536 Advertising 254 250 257 Administrative expenses 418 425 435 Rent 420 420 840 Depreciation 142 Miscellaneous expenses 122 Total expenses 3,679 $ 3,758 $ 5,547 Net income $ 578 $ 212 $ (406) 84 84 53 93 Exhibit 2 Hallstead Jewelers Operating Statistics 2003 Sales space (square feet) 10.230 Sales per square foot $ 839 $ Sales tickets 5,341 Average sales ticket $ 1,607 $ 2004 10,230 792 $ 5,316 1,524 $ 2006 15,280 701 6,897 1,553 Question #1 Sales price per unit Sales commissions per unit Variable costs per unit 2003 1,607.002 80.322 80.322 2004 1,524.078 76 76 2006 1,552.994 78 78 Total annual fixed expenses: Advertising Rent Salaries Depreciation misc expense Admin expenses Total fixed expenses 254,000 420,000 2,021,000 84,000 53,000 418,000 3,250,000 250,000 420,000 2,081,000 84,000 93,000 425.000 3,353,000 257,000 840,000 3,215,000 142,000 122,000 435.000 5,011,000 1,524.078 1,552.994 Sales per unit Less: variable cost CM per sales ticket 1607 80.322 1,526.68 76 1,447.893 1,475.279 Fixed costs Breakeven point in sales tickets 3,250,000 2,128.802 3,353,000 2,315.779 5,011,000 3,396.645 1,552.994 Sales variable costs CM per sales ticket CM ratio 1607 80.322 1,526.68 0.95 1,524.078 76 1,447.893 0.95 78 1,475.279 0.95 fixed costs Breakeven point in sales 3,250,000 3,420,989.698 3,353,000 3,529,427.829 5,011,000 5,274,970.123 MOS 5,162,010.302 4,572,572.171 5,436,029.877 Hallstead Jewelers Case Exhibits Exhibit 1 Hallstead Jewelers Income Statements, for year ended Jan 31 (in '000s) 2003 2004 2006 Sales $ 8,583 $ 8,102 $ 10,711 Less: COGS 4,326 4,132 5,570 Gross margin $ 4,257 $ 3,970 $ 5,141 Expenses Salaries 2,021 2,081 3,215 Commissions 429 405 536 Advertising 254 250 257 Administrative expenses 418 425 435 Rent 420 420 840 Depreciation 142 Miscellaneous expenses 122 Total expenses 3,679 $ 3,758 $ 5,547 Net income $ 578 $ 212 $ (406) 84 84 53 93 Exhibit 2 Hallstead Jewelers Operating Statistics 2003 Sales space (square feet) 10.230 Sales per square foot $ 839 $ Sales tickets 5,341 Average sales ticket $ 1,607 $ 2004 10,230 792 $ 5,316 1,524 $ 2006 15,280 701 6,897 1,553 Question #1 Sales price per unit Sales commissions per unit Variable costs per unit 2003 1,607.002 80.322 80.322 2004 1,524.078 76 76 2006 1,552.994 78 78 Total annual fixed expenses: Advertising Rent Salaries Depreciation misc expense Admin expenses Total fixed expenses 254,000 420,000 2,021,000 84,000 53,000 418,000 3,250,000 250,000 420,000 2,081,000 84,000 93,000 425.000 3,353,000 257,000 840,000 3,215,000 142,000 122,000 435.000 5,011,000 1,524.078 1,552.994 Sales per unit Less: variable cost CM per sales ticket 1607 80.322 1,526.68 76 1,447.893 1,475.279 Fixed costs Breakeven point in sales tickets 3,250,000 2,128.802 3,353,000 2,315.779 5,011,000 3,396.645 1,552.994 Sales variable costs CM per sales ticket CM ratio 1607 80.322 1,526.68 0.95 1,524.078 76 1,447.893 0.95 78 1,475.279 0.95 fixed costs Breakeven point in sales 3,250,000 3,420,989.698 3,353,000 3,529,427.829 5,011,000 5,274,970.123 MOS 5,162,010.302 4,572,572.171 5,436,029.877
