Case Study

Read the case study “Hallstead Jewelers” from the Harvard Business CoursePack.
After reading the case study, you will perform break-even analyses of the business and demonstrate that you understand the implications of the break-even point. Address the following questions in a narrative that contains your analysis and recommendations:

How has the break-even point in number of sales tickets (number of customer orders written) and break-even in sales dollars changed from 2003, to 2004, and to 2006? How has the margin of safety changed? What caused the changes?

One idea that the consultant had was to reduce prices to bring in more customers. If average prices were reduced 10 percent, and the number of sales tickets (unit sales) increased to 7,500, would the company’s income be increased? With prices reduced, what would be the new break-even point in sales tickets and sales dollars? What do you believe about the elasticity of demand for their products?
Another idea that Gretchen had was to eliminate sales commissions. Hallstead’s was the only jewelry store in the city that paid sales commissions, and although both grandfather and father had insisted that commissions were one of the reasons for their success, Gretchen had her doubts. How would the elimination of sales commissions affect the break-even volume?

Michaela felt that a bigger store could benefit from increased advertising, and suggested that they increase advertising by $200,000. How would this increase affect the break-even point? Would you recommend that the sisters try this?

How much would the average sales ticket have to increase to break even if the fixed cost remained the same in 2007 as in 2006?

What do you recommend that the managers at Hallstead Jewelers do?

Cite your work in MLA format.