Exhibit 1 Halstead Jewelers; Income Statements for Years Ended January 31 (thousands of dollars) 2003 2004 2006 Sales 58.583 $8.102 $10,711 Cost of goods sold 4_326 4 132 5 570 Gross marg.) 54.257 53.970 $ 5,141 Expenses Si:411v expense Salaries 2.021 2,081 3,215 Commissions 429 405 536 Advertising 254 250 257 Administrative expenses 418 425 435 Rent 420 420 840 Depredation 84 84 142 Miscellaneous expenses 53 Total expenses $3.679 _88 $3.758 _122 $ 5,547 Net income $ 578 $ 212 $ (406) Source: Casewriter Exhibit 2 Hallstead Jewelers Operating Statistics 2003 2004 2000 Sales space (square feet) 10.230 10,230 15,280 Sales per square toot $ 839 $ 792 S 701 Sales tickets 5.341 5,316 6,897 Average sales ticket $ 1.607 $ 1.524 $ 1,553 Source: Casewriter 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?