Case Scenario 1: Abramson's Jewelers

question 139

Essay

Case Scenario 1: Abramson's Jewelers.
Abramson's Jewelers has established a strong niche market in the upscale jewelry store segment. Abramson's was founded in 1871, and its current single-store location is owned and operated by John Wickersham, who bought the firm from its namesake founders in 1985. Over the last 15 years, Mr. Wickersham has narrowed the company's product offering considerably to focus only on high-end watches like Rolex and Piaget, custom jewelry, and estate jewelry. Mr. Wickersham stresses that this is an appropriate focus for his business since each of the products lends itself to relationship selling, and price rarely comes into the discussion. Despite the narrower offering, Abramson's floor space has doubled, and clients are intensely loyal to the good taste, design skills, and personal service level provided by Mr. Wickersham. After evaluating several expansion options, Mr. Wickersham has decided to open another store in a neighboring city. While it is likely that some of his existing customers may begin doing business at the other location, thus lowering sales volume at the original store, Mr. Wickersham sees this as a desirable increase in the level of service and convenience he can provide his existing clientele. At the same time, he believes that he will be able to grow the overall business faster with two locations. He has identified another reputable gemologist, Jill Diamond, to run the other store and is now considering how to compensate her.
-(Refer to Case Scenario 1). What are the advantages and disadvantages of paying the new manager primarily on new store sales growth?

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Definitions:

Direct Labor-Hours

The total time spent by workers directly involved in the manufacturing process.

Unit Product Cost

The total cost (direct materials, direct labor, and overhead) to produce a single unit of a product.

Predetermined Overhead Rate

A rate calculated before the accounting period begins, used to apply manufacturing overhead costs to products based on a specific activity base.

Machine-Hours

An assessment of manufacturing productivity or performance, determined by the duration for which machinery is active in the production cycle.