McKee 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 S208,000 each. Assume the company has no fixed costs. Mckee 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. McKee Builders's costs per developed sublot are as follows: (Click the icon to view the costs.) Read the requirements. Requirement 1. Which approach to pricing should Mckee Builders emphasize? Why? This means McKee will control over pricing because the tract homes are stiff Mckee Builders will need to emphasize a approach to pricing because they are competition. Requirement 2. Will Mckee Builders be able to achieve its target profit levels? Begin by calculating the target cost. Market price of similiar homes Less: Desired profit Target full cost per home Data Table Land $ 55,000 Construction 120,000 Given the current market price and McKee's current variable costs, the company will to achieve its desired profit. The company's profit will the target by S per home sale Requirement 3. Bathrooms and kitchens are typically the most important selling features of a home, McKee Builders could differentiate the ne enable M McKee Builders to increase the sales prices by $45,500 per home. (Kitchen and bathroom upgrades typically add about 175% of their price per home be? Should the company differentiate its product in this manner? Calculate the new post-plus price per home, Landscaping Variable selling costs 4,000 5,000 Current variable cost per home Print Done McKee 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 S208,000 each. Assume the company has no fixed costs. McKee 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. McKee Builders's costs per developed sublot are as follows: Click the loon to view the costs.) COD. Dorp Target full cost for home Read the requirements. Given the current market price and McKee's current variable costs, the company will to achieve its desired profit. The company's profit will the target by $ per home sale. Requirement 3. Bathrooms and kitchens are typically the most important selling features of a home. McKee Builders could differentiate the homes by upgrading the bathrooms and kitchens. The upgrades would cost $26,000 per home but would enable McKee 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 Mckee 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 Should the company differentiate its product in this manner? the expected market price of an upgraded house. If Mckee can sell the upgraded homes for $253,500, as expected, he will earn The new cost-plus price per home, with bath and kitchen upgrades, is actually desired profil. McKee upgrade the bathrooms and kitchens so that he has control over pricing
