Construct a partial income statement

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Reference no: EM133001992

Mountain Home Systems, Inc. is a well-known and reputable supplier of integrated circuits to manufacturers of telecommunications devices. The firm is currently debating whether to expand its sales to car-telephone manufacturers. While the firm expects an extra $2 million in sales if it enters this market, it also knows that 15% of its sales will ultimately be uncollectible. In addition, collection costs will be 2% on all new sales and the firm's production costs are 72% of sales. Selling expenses are 8% of sales and Mountain Home has an opportunity cost of funds (before tax) of 20%. Mountain Home can turn its receivables 4 times per year.

Required:

-Construct a partial income statement showing the effect of entering this new market. Enter your answer in table format with the following entries: sales, contribution margin, selling expense, bad debt expense, collection cost, investment in AR, total incremental change.

-Should the company enter this market? Explain your answer in sentence form with reference to your calculations in a).

Reference no: EM133001992

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