Smith Builders builds 1,500-square-foot starter tract homes in the fast-growing suburbs of...

Question

Smith					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.					Smith					​Builders' costs per developed sublot are as​ follows:									1​(Click					the icon to view the​ costs.)																					Smith					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					requirements2.															Requirement 1. Which approach to pricing should			Smith			Builders​ emphasize? Why?							Smith			Builders will need to emphasize a																		target-costing																				approach to pricing because they are																		price-takers.																				This means			Smith			will																		not have much																				control over pricing because the tract homes are																		not unique and face																				stiff competition.		Requirement 2. Will			Smith			Builders be able to achieve its target profit​ levels?				Begin by calculating the target cost.																																					Market price of similiar homes																															$206,000																																										Less: Desired profit																																																																									Target full cost per home																																																																																																					Given the current market price and Smith's current variable costs, the company will																															(1)																														to achieve its desired profit.																																		The company's profit will																															(2)																														the target by																																																													per home sale.																													Requirement 3. Bathrooms and kitchens are typically the most important selling features of a home.			Smith			Builders could differentiate the homes by upgrading the bathrooms and kitchens. The upgrades would cost			$22,000			per home but would enable			Smith			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			Smith			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							(3)																				the expected market price of an upgraded house. If			Smith			can sell the upgraded homes for			$244,500​,			as​ expected, he will earn							(4)																				his desired profit.			Smith							(5)																				upgrade the bathrooms and kitchens so that he has							(6)																				control over pricing.	1: Data Table																																													Land																									$55,000																																							Construction																									125,000																																							Landscaping																									6,000																																							Variable selling costs																									3,000																																				2: Requirements																																				1.																						Which approach to pricing should									Smith									Builders​ emphasize? Why?																																		2.																						Will									Smith									Builders be able to achieve its target profit​ levels?																																		3.																						Bathrooms and kitchens are typically the most important selling features of a home.									Smith									Builders could differentiate the homes by upgrading the bathrooms and kitchens. The upgrades would cost									$22,000									per home but would enable									Smith									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									Smith									Builders makes the​ upgrades, what will the new​ cost-plus price per home​ be? Should the company differentiate its product in this​ manner?

Smith 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...

Get Answer To This Question

Related Questions & Answers

Submit New Assignment

Market price of similiar homes	$206,000
Less: Desired profit
Target full cost per home

Given the current market price and Smith's current variable costs, the company will	(1)	to achieve its desired profit.
The company's profit will	(2)	the target by		per home sale.

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

Land	$55,000
Construction	125,000
Landscaping	6,000
Variable selling costs	3,000

1.	Which approach to pricing should Smith Builders emphasize? Why?
2.	Will Smith Builders be able to achieve its target profit levels?
3.	Bathrooms and kitchens are typically the most important selling features of a home. Smith Builders could differentiate the homes by upgrading the bathrooms and kitchens. The upgrades would cost $22,000 per home but would enable Smith 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 Smith Builders makes the upgrades, what will the new cost-plus price per home be? Should the company differentiate its product in this manner?

Smith 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...

Get Answer To This Question

Related Questions & Answers

Submit New Assignment

Smith 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...