Questions:

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?

2. One idea that the consultant had was to reduce prices to bring in more customers. If average prices were reduced ten percent (10%), and the number of sales tickets (unit sales) increased to 7,500, would the company's income be increased? With prices reduced, what would be the new breakeven point in sales tickets and sales dollars?

3. Another idea that Gretchen had was to eliminate sales commissions. Hallstead's 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?

4. Michaela felt that a bigger store could benefit from greater advertising and suggested that they increase advertising by $200,000. How would this affect the breakeven point? Would you recommend that the sisters try this?

5. 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?

6. What do you recommend that the managers at Hallstead Jewelers do? Please include formulas!

Exhibit 1 Hallstead Jewelers; Income Statements for Years Ended January 31 (thousands of dollars) 2003 2004 2006 Sales Cost of goods sold Gross margin $8,583 S8,102 S10,711 4.326 41325.570 S3,970 5.141 $4,257 Selling expense 2,081 405 250 425 420 84 3,215 536 257 2,021 Commissions Advertising Administrative expenses Rent 254 418 840 84 142 Miscellaneous expenses Total expenses Net income $3,679 $3,758 S 5,547 S 578 S 212 S (406) Source: Casewriter Exhibit 2 Hallstead Jewelers Operating Statistics 2003 2004 2006 Sales space (square feet) Sales per square foot Sales tickets Average sales ticket 10,230 s 839 S 792S 701 5,316 S 1,607 $1,524 S 1,553 10,230 15,280 5,341 6,897 Source: Casewriter