Question
White 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.
| White 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 cookie-cutter, with any upgrades added by the buyer after the sale. White Builders costs per developed sub-lot are as follows: | |||||
| Land.$54,000 | |||||
| Construction.$122,000 | |||||
| Landscaping$5,000 | |||||
| Variable marketing costs..$3,000 | |||||
| White Builders would like to earn a profit of 15% of the variable cost of each home sale. Similar homes offered by competing builders sell for $206,000 each. | |||||
| Requirements | |||||
1. Which approach to pricing should White Builders emphasize? Why? | |||||
2. Will White Builders be able to achieve its target profit levels? | |||||
| 3. Bathrooms and kitchens are typically the most important selling features of a home. White Builders could differentiate the homes by upgrading the bathrooms and kitchens. The upgrades would cost $20,000 per home, but would enable White Builders to increase the selling prices by $35,000 per home. (Kitchen and bathroom upgrades typically add about 150% of their cost to the value of any home.) If White Builders makes the upgrades, what will the new cost-plus price per home be? Should the company differentiate its product in this manner? |
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Data Analytics for Accounting
Authors: Vernon Richardson
1st edition
1260375196, 9781260375183 , 978-1260375190
