Hallstead Jewelers Case Study

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Luc-Felix Charles Ekono Hallstead Jewelers Due: 9/30/2012 Gretchen Reeves and Michaela Hurd are the managers of Hallstead Jewelers and their stores. Once their father passed away in 2002 they were given these titles. With profit slowly decreasing they knew something must be done to change that. They relocated and increased the size of the store while updating its image. This happened in 2004. This took almost all of 2005, so they opened again in 2006. That year they received a loss in net income of $316,000. To solve the problems they had they gave a list of question for their accountant to figure out for them. First I had to find the break-even points for units and dollars and see how the margin of safety had changed and what caused that change. In Exhibit 1, 2, and 3 you can see my data for the break-even points and how I found them. After calculating the break even points I found that each year they were increasing. This happened because the fixed cost increased each year while the contribution margin decreased except for 2006. In 2006 the fixed cost was at its highest due to a new rent that was larger and more employees. The margin of safety, which is in exhibit 4, was already extremely low in 2003 at 15%. Then it was 6% in 2004 and 7% in 2006. It has decreased and obviously other things in the business need to change like sales per unit to increase it. The next question was if they decreased price by 105 and increased sale tickets to 14,000, if there income would increase. After solving this, in exhibit 5, I found that this would not of helped in 2006. They would be in more debt if they had done this, they would have lost $379,197. With the price reduced the break-even points for units and for dollars would have increased due to the contribution margin per unit changing. Next they wanted to see what would happen if they took away sales commission

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