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Preston Builders builds 1,500-square-foot starter tract homes in the fast-growing suburbs of Hartford. Land and labor are cheap, and competition among developers is fierce.
Preston Builders builds 1,500-square-foot starter tract homes in the fast-growing suburbs of Hartford. 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. Preston Builders' cost per developed sublot are as follows: (Click the icon to view the costs) Preston Builders would like to eam a profit of 14% of the variable cost of each home sale Similar homes offered by competing builders sell for $200,000 each. Read the requirements Requirement 1. Which approach to pricing should Preston Builders emphasize? Why? Preston will need to emphasize a target-costing approach to pricing. Because the tract homes are not unique and face stiff competition, Preston will not have much control over pricing Requirement 2. Will Preston Builders be able to achieve its target profit levels? Show your computations Complete the following table to show whether Preston Builders will be able to achieve their target profit levels. (Use parentheses or a minus sign to indicate a profit shortfall) Revenue at market price: Less Desired profit Target cost per home Less Actual current variable cost Expected excess profit (profit shortfall)
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