Preston Builders builds 1.500-square-foot starter tract homes in the fast-arowing suburbs of Atlanta, Land and labor are cheap. Preston Builders would like to eam a profit of 14% of the variable opst ofeach home sold. Similar homes offered competing and competition among developers is fieroe. The homes are a standard model, with any upgrades added by the buyer after the sale builders sell for $201,000 each. Assume the company has no fixed oosts. eveloped sublot are as follows Read the reauirernents Requirement 1. Which approach to pricing should Preaton Buildera emphasize? Why? stiff competition. Preston Builders will need to emphasize a approach to pricing because they are This means Preston will control over pricing because the tract homes are Requirement 2. Will Preston Builders be able to achieve its target profit levels? Begin by caloulating the target cost. Market price of similiar homes. Less: Desired profit Target full ccst per home to achieve its desired prolit Given the current market price and Preston's currernt variable costs, the company will the target by $ The company's profit will per home sale Requirement 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 S45,500 per home. (Kitchen and bathroom upgrades typically add about 175% of their cost to the value of any home.) If Preston Builders makes the upgradea, what be? Should the company differentiate its product in this manner? ill the new cost-plus price per home Calculate the iew 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 Preston can sell the upgraded homes for $246,500, his desired profit. The new cost-plus price per home, with bath and kitchen upgrades actually expected, he will earn Preston control over pricing. upgrade the bathrooms and kitchens so that he has X X Requirements Data Table 1. Which approach to pricing should Preston Builders emphasize? Why? Land 56,000 2. Will Preston Builders be able to achieve its target profit levels? 120,000 Construction 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? Landscaping 4,000 Variable selling costs 6,000 Print Done Print Done y differentiate its product in this manner
