C D E F G H J K M 1. Preston Builders builds 1,500-square-foot starter tract homes in the fast-growing suburbs of Boise. Land and labor are cheap, and competition among developers is fierce. The homes are "cookie-cutter," with any upgrades added by the buyer afer the sale. Preston Builders' cost per developed sublot are as follows: Land Construction Landscaping Variable marketing costs $ 56,000 $ 127,000 $ $ 9,000 1,000 Preston Builders would like to earn a profit of 15% of the variable cost of each home sale. Similar homes offered by competing builders sell for $209,000 each. Requirement 1. Which approach to pricing should Preston Builders emphasize? Why? Preston will need to emphasize a approach to pricing. Because the tract homes are not unique and face stiff competition, Preston will not have much control over pricing. Requirement 2. Will Preston Builders be ale to achieve its target profit levels? Complete the following table. (Use parenthesis or a minus sign to indicate a profit shortfall.) Less: Target cost per home Less: Expected excess profit (profit shortall) Given the current market price and Preston Builder's current variable costs, the company will by per home sale. to achieve its target profit. Its profit will fall short D G H Requirement 3. Bathrooms and kitchens are typically the most important selling features of a home. Builders could differentiate the homes by upgrading bathrooms and kitchens. The upgrades would cost $32,000 per home but would increase the selling prices by $56,000 per home. If Preston Builders upgrades, what will the new cost-plus price per home be? Should the company differentiate its product in this manner? NOTE: In general, kitchen and bathroom upgrades typically add at least 150% of their cost to the value of any home. Compute the new cost-plus price per home. Plus: Total variable costs Plus: Cost-plus price The new cost-plus price, with bath and kitchen upgrades, is actually lower than the expected market price of an upgraded house. If Preston can sell the upgraded homes f as expected ($209,000+ $56,000) it will earn more than its target profit. Preston should upgrade the bathrooms and kitchens so that it has more control over pricing