1. Which approach to pricing should Root Builders emphasize? Why? 2. Will Root Builders be able to achieve its target profit levels? Show your computations. 3. Bathrooms and kitchens are typically the most important selling features of a home. Root Builders could differentiate the homes by upgrading bathrooms and kitchens. The upgrades would cost $32,000 per home but would enable the company to increase the selling prices by $56,000 per home (in general, kitchen and bathroom upgrades typically add at least 150% of their cost to the value of any home.) If Root Builders upgrades, what will the new cost-plus price per home be? Should the company differentiate its product in this manner? Show your analysis.
1. Which approach to pricing should Root Builders emphasize? Why? 2. Will Root Builders be able to achieve its target profit levels? Show your computations. 3. Bathrooms and kitchens are typically the most important selling features of a home. Root Builders could differentiate the homes by upgrading bathrooms and kitchens. The upgrades would cost $32,000 per home but would enable the company to increase the selling prices by $56,000 per home (in general, kitchen and bathroom upgrades typically add at least 150% of their cost to the value of any home.) If Root Builders upgrades, what will the new cost-plus price per home be? Should the company differentiate its product in this manner? Show your analysis.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Root Builders builds 1,500-square-foot starter tract homes in the fast-growing suburbs of Albany. 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. Root Builders' cost per developed sublot are as follows:
|
Land. . . . . . . . . . . . . . . . . . . . .
|
$59,000
|
|---|---|
|
Construction. . . . . . . . . . . . . . .
|
$120,000
|
|
Landscaping. . . . . . . . . . . . . . .
|
$9,000
|
|
Variable marketing costs. . . . . .
|
$3,000
|
Root 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 $209,000 each.
Requirements:
1. Which approach to pricing should Root Builders emphasize? Why?
2. Will Root Builders be able to achieve its target profit levels? Show your computations.
3. Bathrooms and kitchens are typically the most important selling features of a home. Root Builders could differentiate the homes by upgrading bathrooms and kitchens. The upgrades would cost $32,000 per home but would enable the company to increase the selling prices by $56,000 per home (in general, kitchen and bathroom upgrades typically add at least 150% of their cost to the value of any home.) If Root Builders upgrades, what will the new cost-plus price per home be? Should the company differentiate its product in this manner? Show your analysis.
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