TEAM B Hallstead Jewelers Case 1

Hallstead Jewelers Case

TEAM B
Michelle Dragoo, Michael Depaolis, Rashad Harrison, Amy Grammer, Kelly Graham
Florida Institute of Technology
Managerial Accounting BUS 5431
 TEAM B Hallstead Jewelers Case 2

RECOMMENDATION

The Company should eliminate the sales commissions paid to their sales clerks

and replace it with an incentive program that ties the employees bonus to the companys

performance. Michaelas suggestion on spending $200,000 more on advertising should

be considered because the store has moved to the new place and advertising is necessary

to inform the loyal customers and bring new clientele in. Hallstead Jewelers should

strengthen their name by differentiating their products and start entering the World Wide

Web retail business.

CONCLUSION

The rise of sales tickets reported in 2006 indicates that moving to the new location was a

good decision. However, the rent has doubled and some of the fixed costs have gone up

as well. The company needs to drive the sales up and differentiate themselves from their

competitors. Effective advertising could help the company to break-even in 2007 and

make a profit in years to come.

RESULTS

Significant points from the case:

In a new building just renovated in 2005, with 50% more space and selling staff

than ever before, the business had experienced a loss almost double the income of

the last normal year

 TEAM B Hallstead Jewelers Case 3

The principal retail shopping areas shifted two blocks west of Washington St.

Reputation and selection still brought customers to Lake Avenue for the

selections at Hallstead

Expansion was impossible without moving ad alterations

In 2004 a large toy seller with more space abandoned the corner of Washington

Street and Second Avenue

Increasing advertising might bring in more customers or changing pricing

formulas to fend off new Internet jewelry competitors

1. The break-even point in number of sales tickets and in sales dollars

increased from 2003, to 2004, and to 2006. The margin of safety decreased
over the years and incurred a loss during 2006. These changes occurred
because the company used 50% more space for a new building and other
costs increased as well.

The breakeven point is the number of units a company must sell to earn zero
profit (Jiambalvo, 2010). Using the profit equation we can find the
 TEAM B Hallstead Jewelers Case 4

breakeven point for number of customer orders and sales dollars. Each year
is as follows:

The margin of safety is the difference between the expected level of sales and
the break-even sales (Jiambalvo, 2010). Since the expected sales are not
given an actual dollar amount cannot be found. By comparing the breakeven
amounts you can see that the margin of safety has completely diminished due
to increased costs, the drop in average ticket sales, and the amount needed to
break even. Average sales per ticket decreased in 2004 causing the
breakeven in both sales tickets and total sales to increase.
Although averages sales per ticket increased marginally from 2004 to 2006 it
was not enough to cover the additional fixed costs due to 50% increase in
staff and space (rent) in new location.

2. With average prices reduced ten percent (10%), and the number of sales
tickets (unit sales) increased to 7,500, the companys income would not
increase, but its loss would increase. With the prices reduced, the new break-
even point in sales dollars would be $13,138 and the new break-even point in
sales tickets would be 9,400 (Appendix #2). The two sisters should not
follow their consultants suggestion.
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3. Gretchens doubts would lead the company in a good direction financially.

Hallstead Jewelers would see a decrease in the break-even volume if sales
commissions were eliminated.

4. If Hallstead Jewelers increased the amount spent for advertising by

$200,000, the break-even point would increase. It should be recommend
that the two sisters stop paying out sales commissions and increase
advertising by $200,000. This change would result in the net profit or loss
during 2007.
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5. If the fixed costs remained the same in 2007 as it was in 2006, the managers
would need to raise the average sales tickets by $59 from $1,553 to $1,612.
Its almost impossible to do this because sales have declined and competition
is strong.

6. It is recommended that Hallstead Jewelers managers to implement some of

the recommendation to increase its sales beyond 7,500 units so that it can
make a profit. If the company is not able to increase its sales in this way, the
managers should find a way to minimize fixed costs in order to avoid taking a
loss.

REFERENCES

Jiambalvo, James, 2010. Managerial Accounting, 4th edition. Hoboken, NJ: John Wiley
& Sons, Inc..