Manufactured Homes Case

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Question 1: Describe the key aspects of Manufactured Homes’ business. Does the company have a viable business?

• Manufactured Homes sells affordable fully furnished and carpeted mobile homes in the southeast of the United States of America. These Potential customers for Manufactured Homes include individuals seeking a single-family primary residence but lacking the ability to purchase conventional housing, retirees, and those wanting a second home for vacation purposes. The company targets individuals in the low-income category, which is a segment of the manufactured homes market in the company’s seven state area. The company’s customers are typically between the ages of 18 and 40, blue-collar workers in manufacturing, service and …show more content…

(2) The seller’s remaining obligations to the buyer under the recourse provision must be subject to reasonable estimation on the date of the transfer of the receivable. For this purpose, the seller should be able to estimate: (a) the amount of bad debts and related costs of collection and repossession, and (b) the amount of prepayments. If the seller cannot make these estimates reasonably well, a transfer of the receivable cannot be reported as a sale. And (3) the seller cannot be required to purchase the receivable from the buyer except in accordance with the recourse provision. If any of the above conditions is not satisfied, the seller of the receivable must report the proceeds from the transfer as a loan against the receivable.
• The company recognizes finance participation income equal to the difference between the contractual interest rates of the installment contracts and the agreed upon rates to the financial institutions; the portion retained by the financial institutions is discounted for estimated time of collection and carried at its present value.

Question 4: The company’s income statement shows that it has two sources of profits: home sales and finance participation income. What is the gross margin (gross profit ratio) in each of these two areas assuming that the costs

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