Builders builds1,500-square-foot starter tract homes in the fast-growing suburbs of Atlanta. Land and labor arecheap, and competition among developers is fierce. The homes are a standard model, with any upgrades added by the buyer after the sale.

Kyler Builders's costs per developed sublot are as follows:

Land: 58,000

Construction: 122,000

Landscaping: 12,000

Variable selling costs: 2,000

Builders would like to earn a profit of 16% of the variable cost of each home sold. Similar homes offered by competing builders sell for $208,000 each. Assume the company has no fixed costs.

Bathrooms and kitchens are typically the most important selling features of a home. Kyler Builders could differentiate the homes by upgrading the bathrooms and kitchens. The upgrades would cost $30,000 per home but would enable Kyler Builders to increase the selling prices by $52,500 per home. (Kitchen and bathroom upgrades typically add about 175% of their cost to the value of any home.) If Kyler Builders makes the upgrades, what will the new cost-plus price per home be? Should the company differentiate its product in this manner?

Calculate the new cost-plus price per home.

Current variable cost per home:
Plus: Variable cost of kitchen and bathroom upgrade per home:
Total variable cost per home:
Plus: Desired profit per home:
Cost-plus price per home: