Question #4:

Michaela felt that a bigger store could benefit from greater advertising and suggest that they increase advertising by $200,000. How would this affect the breakeven point? Would you recommend that the sisters try this?

Exhibit 1: Hallstead Jewelers; Income Statements for Years Ended January 31 (thousands of dollars) 2003 2004 2006 Sales $ 8,583 $ 8,102 $ 10,711 Cost of goods sold 4,326 4,132 5,570 Gross margin $ 4,257 $ 3,970 $ 5,141 Expenses: Selling expenses: Salaries 2,021 2,081 3,215 Commissions 429 405 536 Advertising 254 250 257 Administrative expenses 418 425 435 Rent 400 400 750 Depreciation 84 84 142 Miscellaneous expense 53 93 122 Total expenses $ 3,659 $ 3,738 $ 5,457 Net income $ 598 $ 232 $ (316) Exhibit 2: Hallstead Jewelers Operating Statistics Fiscal years 2003, 2004, 2006 2003 2004 2006 10,230 Sales space (square feet) 15,280 10,230 Sales per square foot $ 839 $ 792 $ 701 Sales tickets 10,153 9,967 13,063 Average sales ticket $ 845 $ 812 $ 819