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Essay Topic: Product sales, Sama dengan,

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Submitted by simply Yellow Group Eunice California king Ronda Klassen Joshua Krupnick Larry McCraw Ronald Mills BUS 5431 Managerial Accounting Professor Nancy Shoemake The spring 18, 2010 1 . 0Summary Hallstead Jewelers was one of many largest rings and surprise stores in the United States for 83 years. Clients came from throughout the region to get from extensive collections in each department.

Any surprise from Hallstead’s had an extra cache placed on it because they were known as the best.

However the principal price tag shopping areas shifted two blocks western, Hallstead’s popularity and selection still brought in customers. It happened in 1999 however , sales became stagnate and profits were beginning to slip. The owners (two sisters, Gretchen and Michaela) made many changes in an attempt to rejuvenate the store returning to its full glory. The largest decision that they made was going to move the businesses location, growing it by 50% more room and advertising staff. This move triggered a five-year lease and extensive and expensive restorations.

They also made some changes in product offerings and provided more sales potential at the cost of minor reductions in margins. In the past year it took to complete the Hallstead’s renovation the market started showing major improvements toward online jewelry product sales. Tiffany , Company, a small business with a great origin very much like Hallstead Jewelers, grew into a global powerhouse. Concurrently, a start-up internet retailer, Blue Nile, became the 2nd largest diamond seller inside the U. S.

While Hallstead’s was developing their fixed costs by simply doubling their rent repayments, Tiffany and Blue Nile were raising their income with “virtual storefronts allowing them to increase sales with little or no increase in price. In an effort to check out ideas in strategy that could return the business enterprise to success, the sisters compiled several questions for his or her accountant to investigate using a few additional working statistics. The following answers will take a much deeper look into the mechanics of the organization and provide Gretchen and Michaela with suggestions to obtain business again on track. installment payments on your Changes in Breakeven and Margin of Security The following stand shows that while the breakeven in both product sales dollars and number of revenue tickets offers continued to increase from 2003, to 2004, and to 2006, the margin of safety has reduced over the same period of time. What caused this change? a few. 0Reduction in cost One thought the specialist had was to reduce prices to bring in even more customers. The following table displays that by reducing rates 10% and increasing revenue to several, 500 seat tickets, the company’s operating income significantly decreases, shedding an additional $580K over the earlier year’s income/loss.

Breakeven in sales seats is on the lookout for, 337 ” an increase of 1, 832 through the previous season. Breakeven in sales dollars increases $1. 47 mil to a total of $13. 12 mil needed. four. 0Elimination of Sales Commissions Another idea that Gretchen had was to eliminate sales commissions even though equally her Grandpa and Father insisted that commissions were one of the reasons for success in past times. The figure below displays that the eradication of revenue commission greatly affects working income.

By eliminating the revenue commission within a projection in the three previously reported years, we can see that operating cash flow is in the confident for all 3 periods. Even though Gretchen’s father and grandfather perceived commission rate to give all of them a competitive edge, computations prove that the commission obligations are definitely hurting Halstead’s bottom line. Further concern should be directed at eliminate all of them if possible. five. 0Advertising Michaela felt that the bigger store could benefit from greater promoting and recommended that advertising and marketing be increased by one-hundred dollar, 000.

If perhaps advertising expenses were improved by two-hundred dollar, 000, the breakeven justification in both product sales dollars and sales seats would enhance. For Money Year (FY) 2006, Hallstead spent $257, 000 in advertising. If perhaps this had been increased to $457, 500, the breakeven point would be as follows: Breakeven in product sales tickets sama dengan Breakeven product sales dollars / Average revenue tickets 7, 805 sama dengan $12, one hundred twenty, 525. 73 / $1, 553 Breakeven in sales dollars = Total Fixed Costs / Contribution perimeter ratio $12, 120, 525. 73 = $5, 211, 000 as well as 0. 430

The affect of the improves in advertising and marketing expenditures on the breakeven point in sales dollars would be a boost from $11, 655, 335. 72 to $12, 120, 525. 73, a difference of $465, one hundred ninety. 01. It could probably be a good option for Hallstead Jewelers to try the rise in marketing. Although the company is currently battling a negative operating income, the rise in breakeven dollars is relatively nominal. Competition from much larger companies, just like Tiffany , Company, and also internet rings sales coming from companies just like Blue Earth has taken some of their business.

Perhaps some of this improved advertising budget needs to be spent on expanding their business to the internet and advertising there, allowing Hallstead to be competitive more directly with Green Nile and boost product sales. Increased advertising and marketing may also help bring in more consumers who aren’t yet aware about the company’s new Washington St location and larger renovated retail store. 6. 0Average Sales Seats The following summary takes a check out how much the average sales admission would have to increase to breakeven if the set cost continued to be the same in 2007 as it was in 2006. Common sales admission for 06\ is $1, 553 snabel-a 6, 897 tickets to get an Functioning loss of $406, 000. ¢# of entry pass x Typical sales solution = Sales revenue ¢6, 897 entry pass x $1, 553 = $10, 711, 041 ¢Average ticket sales dollar amount needed to break even sama dengan Sales revenue needed to break even / # of product sales tickets intended for 2006 ¢Average ticket sale dollar amount had to break even sama dengan (Fixed Price / Contribution Margin Ratio) / # of sales tickets for 2006 ¢Average ticket deal dollar amount required to break even sama dengan ($5, 011, 000 as well as 0. 43) / 6th, 897 ¢Average ticket deal dollar amount required to break even sama dengan $1689. two ¢Average sales ticket increase to break-even = Common ticket sales needed to make your money back , Typical sales solution for 06\ ¢Average product sales ticket maximize to break-even = $1690 , $1, 553 sama dengan $137 Simply by reducing rates 10% and increasing sales to 7, 500 tickets, the company’s working income considerably decreases, shedding an additional $580K over the prior year’s income/loss. Breakeven in sales tickets is being unfaithful, 337 ” an increase of 1, 832 through the previous year. Breakeven in sales us dollars raises $1. 47 , 000, 000 to a total of $13. 12 million needed. six. 0Recommendations

In our analysis of Hallstead Jewelers we located that Cash flow was steadily declining plus the move to the new location, with increased fixed costs, resulted in a loss intended for 2006. We all implemented a number of options to see what variances would occur. A expert recommended a 10% lowering of prices which will would bring about an increase in sales. We revealed this as a bad idea as working income significantly decreased with all the price decrease. Another thought was to eliminate sales percentage. Eliminating product sales commission greatly enhanced operating income and resulted in positive operating income for all 36 months.

Michaela advised increasing the advertising budget by simply $200, 000. Increasing the advertising budget improved the breakeven in sales dollars by simply $465, one hundred ninety, if raising the marketing budget results in more sales it would be justifiable. Based on the analysis of Hallstead Jewelers we would suggest that they discontinue the practice of paying sales commissions. Although Gretchen’s father and grandfather perceived sales commission rate to give these people a competitive edge and drive sales, calculations provide evidence that the percentage payments are hurting Halstead’s bottom line.

Removal of revenue commission 5 years ago would have ended in $1, 215, 184 less in breakeven sales dollars. The company’s identity and reputation should be advantage enough to drive Hallstead Jewelers sales. In addition , we would suggest Hallstead Company use two-hundred dollar, 000 from the elimination from the sales commissions and put it on to elevating the advertisement price range combating firm competition from large retailers such as Tiffany and Firm and the web business, Blue Nile.

The increased advertising budget ought to be assessed with an annual basis to validate its efficiency. Works Reported Jiambalvo, James. Managerial Accounting 4th ed. New Jersey: Ruben Wiley, 2010. “Break-Even Evaluation.  Wikipedia Online http://en. wikipedia. org/wiki/Break_even_analysis. (11 APR. 2010) “Contribution Margin.  Wikipedia Online http://en. wikipedia. org/wiki/Contribution_margin. (10 APR. 2010)

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