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7. Gildea Builders builds 1,500-square-foot starter tract homes in the fast-growing suburbs of Tulsa. Land and labor are cheap, and competition among developers is fierce. The homes are "cookie-cutter," with any upgrades added by the buyer after the sale. Gildea Builders' cost per developed sublot are as follows: 11(Click the icon to view the costs.) Gildea 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 $204,000 each. Read the requirements 12 Requirement 1. Which approach to pricing should Gildea Builders emphasize? Why? control over pricing. Gildea will need to emphasize a (1) approach to pricing. Because the tract homes are (2) stiff competition, Gildea will (3) Requirement 2. Will Gildea Builders be able to achieve its target profit levels? Show your computations Complete the following table to show whether Gildea Builders will be able to achieve their target profit levels. (Use parentheses or a minus sign to indicate a profit shortfall.) (4) Less: (5) Target cost per home Less (6) Expected excess profit (profit shortfall) (7) to achieve Given the current market price and Gildea Builder's current variable costs, the company will its target profit. Its profit will (8) | bys per home sale. Requirement 3. Bathrooms and kitchens are typically the most important selling features of a home. Gildea Builders could differentiate the homes by upgrading bathrooms and kitchens. The upgrades would cost $28,000 per home but would enable the company to increase the selling prices by $49,000 per home (in general, kitchen and bathroom upgrades typically add at least 150% of their cost to the value of any home.) If Gildea Builders upgrades, what will the new cost-plus price per home be? Should the company differentiate its product in this manner? Show your analysis. Compute the new cost-plus price per home. (9) Plus: (10) Total variable costs Plus: |(11) Cost-plus price the expected market price of an upgraded house. If Gildea can sell the upgraded homes for $253,000, as expected, it will earn (13) its target profit. Gildea (14) upgrade the bathrooms and kitchens so The new cost-plus price, with bath and kitchen upgrades, is actually (12) that it has (15) control over pricing 11: Data Table Land $ 52,000 Construction $ 124,000 $ 6,000 Landscaping Variable marketing costs $ 2,000 12: Requirements 1. Which approach to pricing should Gildea Builders emphasize? Why? 2. Will Gildea Builders be able to achieve its target profit levels? Show your computations 3. Bathrooms and kitchens are typically the most important selling features of a home. Gildea Builders could differentiate the homes by upgrading bathrooms and kitchens. The upgrades would cost $28,000 per home but would enable the company to increase the selling prices by $49,000 per home in general, kitchen and bathroom upgrades typically add at least 150% of their cost to the value of any home.) If Gildea Builders upgrades, what will the new cost-plus price per home be? Should the company differentiate its product in this manner? Show your analysis. (5) (6) (1) O cost-plus O target-costing (2) O not unique and face O unique and do not face (3) O have a lot of O not have much O Revenue at market price Total fixed costs O Revenue at market price O Total fixed costs (4) O O Actual current variable cost O Desired profit Fixed costs O Revenue at market price O Actual current variable cost 0 Total fixed costs O Desired profit O Fixed costs O Actual current variable cost O Desired profit O Fixed costs (7) O O be able to O not be able to (8) O O exceed O fall short (9) O O Current variable costs O Desired profit O Fixed costs O Market price of similar homes Target costs O Total fixed costs O Variable cost of kitchen and bath upgrades (10) O O Current variable costs O Desired profit O Fixed costs O Market price of similar homes Target costs O Total fixed costs O Variable cost of kitchen and (11) O O Current variable costs O Desired profit Fixed costs Market price of similar homes Target costs O Total fixed costs O Variable kitchen and upgrades upgrades (12) O equal to O higher than O lower than (13) O equal to O less than O more than (14) O should O should not (15) O equal O less O more
