Cost

Requirement:

Preston 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 a standard model, with any upgrades added by the buyer after the sale. Preston Builders' costs per developed sublot are as follows: (Click the icon to view the costs.) Preston 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 $200,000 each. Assume the company has no fixed costs. Read the requirements. Requirement 1. Which approach to pricing should Preston Builders emphasize? Why? Preston Builders will need to emphasize a approach to pricing because they are control over pricing because the tract This means Preston will homes are stiff competition. Land $ $ 52,000 Construction 125,000 4,000 Landscaping Variable selling costs 6,000 1. Which approach to pricing should Preston Builders emphasize? Why? 2. Will Preston Builders be able to achieve its target profit levels? 3. Bathrooms and kitchens are typically the most important selling features of a home. Preston Builders could differentiate the homes by upgrading the bathrooms and kitchens. The upgrades would cost $26,000 per home but would enable Preston Builders to increase the sales prices by $45,500 per home. (Kitchen and bathroom upgrades typically add about 175% of their cost to the value of any home.) If Preston Builders makes the upgrades, what will the new cost-plus price per home be? Should the company differentiate its product in this manner