Builders builds1,500-square-foot starter tract homes in the fast-growing suburbs
ID: 2454462 • Letter: B
Question
Builders builds1,500-square-foot starter tract homes in the fast-growing suburbs of Atlanta. Land and labor arecheap, and competition among developers is fierce. The homes are a standard model, with any upgrades added by the buyer after the sale.
Kyler Builders's costs per developed sublot are as follows:
Land: $58,000
Construction: $122,000
Landscaping: $12,000
Variable selling costs: $2,000
Builders would like to earn a profit of 16% of the variable cost of each home sold. Similar homes offered by competing builders sell for $208,000 each. Assume the company has no fixed costs.
Target Full Cost per Home: $176,960
The company's profit will fall short of the target by $17,040 per home sale.
Bathrooms and kitchens are typically the most important selling features of a home.Kyler Builders could differentiate the homes by upgrading the bathrooms and kitchens. The upgrades would cost $30,000 per home but would enable KylerBuilders to increase the selling prices by $52,500 per home. (Kitchen and bathroom upgrades typically add about 175% of their cost to the value of any home.) If KylerBuilders 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:?
Please, show your work. Thank you.
A similar question was posted on Chegg, but the answer was not correct.
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:?
Explanation / Answer
Kyler Builders Current Variable cost of Home Details Amt $ Land 58,000 Construction 122,000 Landscaping 12,000 Variable selling cost 2,000 Total Current Variable cost 194,000 Target Profit @16% on variable cost 31,040 Shortfall from target Profit 17,040 Net Profit per Home 14,000 Sales price per Home 208,000 Cost Plus price per home Current Variable cost per home 194,000 Plus : Variable cost of kitchen & Bathroom upgrade per home 30,000 Total variable cost per Home 224,000 Desired Profit @16% on variable cost per home 35,840 Cost Plus price per home $ 259,840.0
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