Managerial Accounting - Hallstead Jewelers Case

If Gretchen were to eliminate sales commissions, Hallstead Jewelers would have ended up with a net income of $220,000 in 2006 as opposed to the net loss of $316,000 (see ehi!it 3" 1# %& usin' the contri!ution mar'in approach, one o ne can see that the contri!ution co ntri!ution mar'in or the ales )evenue less *otal +ari +aria!le a!le ost e-uals $.1/1 (see ehi!it 3"2# 3 "2# %& usin' that contri!ution mar'in, one can further anal&e the effects of removin' sales commissions as an epense *he contri!uted mar'in ratio for Hallstead Jewelers sales was / in 2006  ith this ratio, it was determined that their !rea4"even volume in dollars do llars with commission as an epense was $11365. *his means that with sales commission, Hallstead Jewelers incurred a net loss on the &ear n the other hand, if sales commissions were to !e removed, their !rea4"even volume in dollars would !e $10510/2 *his means that not onl& did Hallstead Jewelers !rea4"even, the& even mana'ed to ma4e a profit of $0.7 ith commission8 Contributio Contribution n Margin Margin Ratio Ratio =

Contribution Margin $ 5141 = =.48 Sales $ 10711

Breakeven Volume∈ Dollars=

¿ Costs

Contribution Contribution Margin Margin Ratio

=

$ 5457 .48

= $ 11368.75

ithout commission8 $ 5141 =.48 $ 10711 $ 5141 Breakeven Volume∈ Dollars= = $ 10710.42 Contrib Contrib u tion Margin Margin Ratio Ratio =

.48

Exhibit 3-1: Hallstead Jewelers Income Statement for Year Ended 31 (thousands of dollars)   !!"

Sales &ost of 'oods Sold

#1!$%1 1 -$%!

'ross ar*in Ex,enses: Sellin* Ex,enses:   Salaries Sa   d.ertisin* d dministrati.e Ex,enses   /e /ent   0e 0e,reciation

#$1+1

iscellaneous Ex,enses  otal  otal Ex,enses

1

3$1 % +3 %! 1+

#+$21 et Income

# !

Exhibit 3- Hallstead Jewlers Income Statement for Year Ended  Januar4 31 (thousands of dollars) !!"

Sales 5ariable &ost

#1!$%1 1 -%!

&ontribution ar*in

#$1+1

6ixed &osts

+21

et Income

#!