1.)The breakeven point in number of sales has risen along with the breakeven point in sales dollars from 2003 to 2006. The margin of safety has decreased as well. Every year they have to increase the number of sales tickets then the previous year to meet their breakeven point. After 2004 when expansion of the store begun, Hallstead’s fixed cost have grown each year. The decrease from 2004 to 2006 is far less substantial than from 2003 to 2004. This damage is cause by the stores expansion. It is renting a much larger space down the street from its previous location.
This has incurred much lager expenses each year then in than prior to 2004. 2.)Yes, the company’s income would increase. The new breakeven point in sales dollars would be approximately $6.03 million. 3.)Eliminating sales commission would have a huge effect on the breakeven volume. If they follow through with Gretchen’s idea of eliminating sales commission their expenses would decrease a great deal each year. They would not have to make nearly as many sales to breakeven. Although this could have an adverse effect on the sales volume.
Employees will not be nearly as aggressive in making sales because it will not affect their personal income. Employees could act disapprovingly towards this new measure, affecting the bottom line negatively in the long run. 4.)If Hallstead added an additional $200,000 to advertising each year they would have to increase the sales volume considerably, that’s if they decide not to do away with sales commission.
5.)Average sales would have to increase over $24 to break even if fixed costs remained the same. 6.)I would recommend that Hallstead Jewelers listen to the consultant that suggested price reduction to increase sales. I believe this would be a smart move because with the new store they have room for more sales then the previous location so upping sales numbers is an important step. If reducing sales doesn’t help improve the bottom line, I would then suggest that they eliminate sales commission. Although this as been an important part of business, eliminating sales commission would greatly decrease their yearly expense. I think adding advertising after their recent move is extremely important. Although it is a $200,000 expense, it could increase sales significantly. These are my suggestions for Hallstead Jewelers