Rouse Builders builds 1,500square-foot starter tract homes in the fast-growing suburbs of Rouse Builders would like to earn a prot of 14% of the variable cost of each home sold. Atlanta. Land and labor are cheap, and competition among developers is erce. The homes are a 8 Similar homes offered by competing builders sell for $200,000 each. Assume the standard model, with any upgrades added by the buyer after the sale. Rouse Builders' costs per company has no fixed costs. developed sublot are as follows: @ (Click the icon to view the costs.) Read the @m' Requirement 1. Which approach to pricing should Rouse Builders emphasize? Why? Rouse Builders will need to emphasize a target-costing approach to pricing because they are price-takers. This means Rouse will not have much control over pricing because the tract homes are not unique and face stiff competition. Requirement 2. Will Rouse Builders be able to achieve its target profit levels? Begin by calculating the target cost. Market price of similiar homes 55 200.000 Less: Desired profit Target full cost per home $ 174.660 Given the current market price and Rouse's current variable costs, the company will \"01 be able to achieve its desired profit. V The company's profit will fall short 0f the target by $ 5.340 per home sale. Requirement 3. Bathrooms and kitchens are typically the most important selling features of a home. Rouse Builders could differentiate the homes by upgrading the bathrooms and kitchens. The upgrades would cost $12,000 per home but would enable Rouse Builders to increase the sales prices by $21,000 per home. (Kitchen and bathroom upgrades typically add about 175% of their cost to the value of any home.) If Rouse 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 costplus price per home. Current variable cost per home 174,660 Plus: Variable cost of kitchen and bathroom upgrade per home Total variable cost per home 186660 Plus: Desired prot per home . . . will need to emphasize a target snsting annranch to nrising hannues thou are bring takcare This means Rouse and face stiff compe - X Data table Will Rouse Builders be ating the target cost. $ similiar homes $ Land 51,000 Construction 125,000 profit Landscaping 4,000 per home $ Variable selling costs 1,000 ent market price and Rous ve its desired profit. profit will fall shor Bathrooms and kitchen: Print Done ilders could differen d cost $12,000 per home 00 per home. (Kitch any home.) If Rouse Build e? Should the comp ew cost-plus price per home. e cost per home 174,660 cost of kitchen and bathroom upgrade per home 12,000 ost per home 186660 rofit per home 26132.4 212792.4 per homeRouse Builde t have much control over prici are not uniqu Requirements Requirement Begin by calc . Which approach to pricing should Rouse Builders emphasize? Why? _ . Will Rouse Builders be able to achieve its target prot levels? Market price ' . Bathrooms and kitchens are typically the most important selling features of a home. Rouse Builders could differentiate the homes by upgrading the bathrooms and kitchens. The upgrades would cost $12,000 per home but would enable Rouse Builders to increase the sales prices by Target fU" C0 $21,000 per home. (Kitchen and bathroom upgrades typically add about 175% of their cost to the value of any home.) If Rouse Builders makes the upgrades, what will the new cost-plus price per home be? Should the company differentiate its product in this manner? Less: Desired Given the our The company Requirement e homes by upgrading the bathr upgrades wou _ - bathroom upgrades typically ad to the value 0' Pr'nt fferentiate its product in this mar Calculate the 174,660 Current variable cost per home Plus: Variable cost of kitchen and bathroom upgrade per home 12'000 Total variable cost per home 186660