Hallstead Jewelers

Acct 2301

Fengbin Wang

Prof. Zullo

Spring 2012

1.

Variable cost | 2003 | 2004 | 2006 |

COGS | 4,326,000 | 4,132,000 | 5,570,000 |

Commissions | 429,000 | 405,000 | 536,000 |

Total | 4,755,000 | 4,537,000 | 6,106,000 |

Fixed cost | 2003 | 2004 | 2006 |

Salaries | 2,021,000 | 2,081,000 | 3,215,000 |

Advertising | 254,000 | 250,000 | 257,000 |

Administrative expenses | 418,000 | 425,000 | 435,000 |

Rent | 400,000 | 400,000 | 750,000 |

Depreciation | 84,000 | 84,000 | 142,000 |

Miscellaneous expenses | 53,000 | 93,000 | 122,000 |

Total | 3,250,000 | 3,535,000 | 5,011,000 |

Years | 2003 | 2004 | 2006 |

Sales | 8,583,000 | 8,102,000 | 10,711,000 |

Variable cost | 4,755,000 | 4,537,000 | 6,106,000 |

Contribution margin | 3,828,000 | 3,565,000 | 4,605,000 |

Fixed cost | 3,250,000 | 3,535,000 | 5,011,000 |

Net income | 578,000 | 30,000 | -406,000 |

Average sales ticket price $845(2003) 812(2004) 819(2006)

Sales tickets 10,153 9,967 13,063

Contribution margin 377 357 352

per units

Break-even quantity= fixed cost/ Contribution margin per unit

Break-even quantity: 8,620 9,901 14,235

Breakeven Sales = Breakeven Qty x average sales ticket price

Breakeven Sales $7,283,900 8,039,602 11,658,465

Margin of Safety = Actual sales - BE sales

Sales 8,583,000 8,102,000 10,711,000

Margin of Safety (sales dollar) – 1,299,100 -62,398 947,465

Margin of Safety (sales tickets) 1,533 66 -1,172

The major cause of the increase in breakeven quantities and sales, and the decrease of margin of safety is the sharp increase of fixed cost by nearly 50% in 2006 from 2004, relative to increase of sales tickets by 30%.  The ticket sales is a cause that affect the increase in breakeven quantities and sales but simply not enough to off set the greater increase in fixed...