Steinbarr 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. Steinbarr Builders's costs per developed sublot are as follows: (Click the icon to view the costs.) Steinbarr 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 $206,000 each. Assume the company has no fixed costs. Read the requirements. Requirement 1. Which approach to pricing should Steinbarr Builders emphasize? Why? Steinbarr Builders will need to emphasize a approach to pricing because they are This means Steinbarr will control over pricing because the tract homes are stiff competition. Requirement 2. Will Steinbarr 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 Given the current market price and Steinbarr'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. Steinbarr Builders could differentiate the homes by upgrading the bathrooms and kitchens. The upgrades would cost $22,000 per home but would enable Steinbarr Builders to increase the sales prices by $38,500 per home. (Kitchen and bathroom upgrades typically add about 175% of their cost to the value of any home.) If Steinbarr 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 new cost-plus price per home, with bath and kitchen upgrades, is actually the expected market price of an upgraded house. If Steinbarr can sell the upgraded homes for $244,500, as expected, he will earn his desired profit. Steinbarr upgrade the bathrooms and kitchens so that he has control over pricing. Land $ 56,000 Construction 121,000 Landscaping 4,000 Variable selling costs 10,000