**E8-19A Pricing Decisions Given Two Scenarios****Overview:**Dominic Builders constructs 1,500-square-foot starter tract homes in the rapidly expanding suburbs of Atlanta. Due to inexpensive land and labor and intense competition among developers, the homes are "cookie-cutter," with any upgrades added by the buyer after the sale.**Cost Breakdown:**- Land: $52,000- Construction: $122,000- Landscaping: $6,000- Variable marketing costs: $3,000**Profit Goal:**Dominic Builders aims to achieve a profit of 14% of the variable cost of each home sale. Competing builders are selling similar homes for $202,000 each.**Requirements:**1. **Pricing Strategy:** - Discuss the optimal pricing strategy Dominic Builders should adopt, explaining the rationale behind the choice.2. **Profit Target Feasibility:** - Analyze if Dominic Builders can meet its profit targets by demonstrating necessary calculations.3. **Upgrading Strategy Analysis:** - Kitchens and bathrooms are key selling features. Consider a strategy where Dominic Builders upgrades these areas at a cost of $20,000 per home and raises the selling price by $35,000. - Since such upgrades typically enhance home value significantly (150% of their cost), evaluate the best approach to implement this differentiation to maximize cost-plus pricing.**Discussion Points:**- Analyze market conditions and pricing strategies to determine competitiveness.- Evaluate cost-to-benefit ratios for potential upgrades to attract buyers.- Present computations for various pricing scenarios to uphold profit margins while maintaining market alignment.

Variable costs are the costs that tend to change with the production volume of the entity.

Dominic Builders would like to earn a profit of 14% of the variable cost of each home homes are "cookie-cutter," with any upgrades added by the buyer after the sale. Domitie Dominic Builders builds starter tract homes in the fast-growing subuta, E8-19A Pricing decisions givel Builders' costs per developed sublot are as follows: $ 52,000 $122,000 Land.. $ 6,000 $ 3,00 Construction. Landscaping. Variable marketing costs. sale. Similar homes offered by competing builders sell for $202,000 each, Requirements 1. Which approach to pricing should Dominic Builders emphasize? Why? 2. Will Dominic Builders be able to achieve its target profit levels? Show your

Dominic Builders would like to earn a profit of 14% of the variable cost of each home homes are "cookie-cutter," with any upgrades added by the buyer after the sale. Domitie Dominic Builders builds starter tract homes in the fast-growing subuta, E8-19A Pricing decisions givel Builders' costs per developed sublot are as follows: $ 52,000 $122,000 Land.. $ 6,000 $ 3,00 Construction. Landscaping. Variable marketing costs. sale. Similar homes offered by competing builders sell for $202,000 each, Requirements 1. Which approach to pricing should Dominic Builders emphasize? Why? 2. Will Dominic Builders be able to achieve its target profit levels? Show your

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Plymouth corporation sells units for $108 each Variable costs are $39 per unit, and fixed costs are $212,000. If Plymouth leases a bed cast wail increase by $85,000 a year, but production will be more efficient, saving $5 per unit. At what level of production will Plymouth be indifferent between leasing and not leasing the new machine?
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Lamphere Lawn Care provides lawn and gardening services. The price of the service is fixed at a flat rate for each service, and most costs of providing the service are the same, given the similarity in the lawns and lots. The owner budgets income by estimating two factors that fluctuate with the economy: the contribution margin associated with each service call and the number of customers who will request lawn service. Looking at next year, the owner develops the following estimates of contribution margin (price less variable cost of the service, including labor) and the estimated number of service calls. Although the owner understands that it is not strictly true, the owner assumes that the cost of fuel and the number of customers are independent. Contribution Margin per Service Call Scenario Excellent Fair Poor (Price - $ 50 Variable cost) Service Calls 40 12 Number of 10,950 8,500 6,200 In addition to the variable costs of service, the owner estimates that other costs are $63,000…