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Managerial Accounting - Hallstead Jewelers Case
Managerial Accounting - Hallstead Jewelers Case
Managerial Accounting - Hallstead Jewelers Case
up with a net income of $220,000 in 2006 as opposed to the net loss of $316,000 (see exhibit 31). By using the contribution margin approach, one can see that the contribution margin or the
Sales Revenue less Total Variable Cost equals $5141 (see exhibit 3-2). By using that contribution
margin, one can further analyze the effects of removing sales commissions as an expense. The
contributed margin ratio for Hallstead Jewelers sales was .48 in 2006. With this ratio, it was
determined that their break-even volume in dollars with commission as an expense was
$11368.75. This means that with sales commission, Hallstead Jewelers incurred a net loss on the
year. On the other hand, if sales commissions were to be removed, their break-even volume in
dollars would be $10710.42. This means that not only did Hallstead Jewelers break-even, they
even managed to make a profit of $0.58!
With commission:
Contribution Margin Ratio=
Costs
$ 5457
=
=$ 11368.75
Contribution Margin Ratio
.48
Without commission:
$ 5141
=.48
$ 10711
$ 5141
Breakeven Volume Dollars=
=$ 10710.42
.48
Contribu tion Margin Ratio=
Exhibit 3-1:
Hallstead Jewelers
Income Statement for Year Ended 31
(thousands of dollars)
2006
Sales
Cost of Goods Sold
Gross Margin
Expenses:
Selling Expenses:
Salaries
Advertising
Administrative Expenses
Rent
Depreciation
Miscellaneous Expenses
Total Expenses
$10,71
1
-5,570
$5,141
3,215
257
435
750
142
122
$4,921
Net Income
$ 220
Exhibit 3-2
Hallstead Jewlers
Income Statement for Year Ended
January 31
(thousands of dollars)
2006
Sales
Variable Cost
$10,71
1
-5570
Contribution Margin
$5,141
Fixed Costs
4921
Net Income
$220