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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…

• Gross profit is defined as the difference between Sales and Cost of Sales. The gross margin (or gross profit ratio) expresses the gross profit as a proportion of net sales. The gross profit margin ratio measures how efficiently a company uses its resources, materials, and labour in the production process by showing the percentage of net sales remaining after subtracting the cost of making and selling a product or service. It indicates the profitability of a business before overhead costs. The higher the percentage, the more the business retains of each dollar of sales. So: the higher the gross profit margin ratio, the better.

Calculation gross profit ratio for the home sales: 1986 1985 1984
Net sales $106,095,667 $68,674,779 $30,480,571
Cost of Sales 86,212,901 56,222,412 24,324,851
Gross profit 19,882,766 12,452,367 6,155,720 Gross profit ratio 18.74 %
[($19,882,766 ÷ $106,095,667) × 100] 18.13 %
[($12,452,367 ÷ $68,674,779) × 100] 20.20 %
[($6,155,720 ÷ $30,480,571) × 100]

Calculation gross profit ratio for the finance participation income: 1986 1985 1984
Finance participation income $12,084,108 $9,715,558 $5,221,279
Costs 0 0 0
Gross profit 12,084,108 9,715,558 5,221,279 Gross profit ratio 100 % 100 % 100 %

• The reason for the high gross profit ratio for the finance participation income is that there are little to no costs relating to this income. The amount of gross profit for the home sales is higher

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