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Rouse Builders builds 1,500-square-foot starter tract homes in the fast-growing suburbs of Atlanta. Land and labor are cheap, and competition among developers is fierce. The homes are standard model, with any upgrades added by the buyer after the sale. Rouse Builders's costs per developed sublot are as follows: E: (Click the icon to view the costs.) Rouse Builders would like to earn a profit of 14% 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. Read the requirements Requirement 1. Which approach to pricing should Rouse Builders emphasize? Why? - X Data Table Rouse Builders will need to emphasize a target-costing approach to pricing because they are price-takers. This means Rouse will not have much control over pricing because the tract homes are not unique and face stiff competition 1,000 Requirement 2. Will Rouse Builders be able to achieve its target profit levels? Land $ 58,000 Begin by calculating the target cost. Construction 121,000 Market price of similiar homes 208000 Landscaping 6,000 29120 Less: Desired profit Variable selling costs Target full cost per home 178880 Print Done Given the current market price and Rouse's current variable costs, the company will not be able to achieve its desired profit. The company's profit will fall short of the target by $ 7120 per home sale Requirement 3. Bathrooms and kitchens are typically the most important selling features of a home. Rouse Builders could differentiate the homes by upgrading the bathrooms and kitchens. The upgrades would cost $12,000 per home but would enable Rouse Builders to increase the sales prices by $21,000 per home. (Kitcher and bathroom upgrades typically add about 175% of their cost to the value of any home.) If Rouse 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 186000 12000 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 198000 27720 225942 Should the company differentiate its product in this manner? the expected market price of an upgraded house. If Rouse can sell the upgraded homes for $229,000, as expected, he will earn less than his desired profit. Rouse should not upgrade the bathrooms and kitchens so that he has The new cost-plus price per home, with bath and kitchen upgrades, is actually lower than more control over pricing