Making pricing decisionsJohnson 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. Johnson Builders’s costs per developed sub lot are as follows:Johnson 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 $207,000 each. Assume the company has no fixed costs.RequirementsWhich approach to pricing should Johnson Builders emphasize? Why?Will Johnson Builders be able to achieve its target profit levels?Bathrooms and kitchens are typically the most important selling features of a home. Johnson Builders could differentiate the homes by upgrading the bathrooms and kitchens. The upgrades would cost $16,000 per home but would enable Johnson Builders to increase the sales prices by $28,000 per home. (Kitchen and bathroom upgrades typically add about 175% of their cost to the value of any home.) If Johnson Builders makes the upgrades, what will the new cost-plus price per home be? Should the company differentiate its product in this manner? Land$ 50,000Construction123,000Landscaping9,000Variable selling costs8,000

Answered: Land $ 50,000 Construction 123,000…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter12: Balanced Scorecard And Other Performance Measures

Section: Chapter Questions

Problem 11MC: Dixon Construction Materials has collected this information: Based on this Information, what is the...

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Making pricing decisions

Johnson 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. Johnson Builders’s costs per developed sub lot are as follows:

Johnson 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 $207,000 each. Assume the company has no fixed costs.

Requirements

Which approach to pricing should Johnson Builders emphasize? Why?
Will Johnson Builders be able to achieve its target profit levels?
Bathrooms and kitchens are typically the most important selling features of a home. Johnson Builders could differentiate the homes by upgrading the bathrooms and kitchens. The upgrades would cost $16,000 per home but would enable Johnson Builders to increase the sales prices by $28,000 per home. (Kitchen and bathroom upgrades typically add about 175% of their cost to the value of any home.) If Johnson Builders makes the upgrades, what will the new cost-plus price per home be? Should the company differentiate its product in this manner?

Land
$ 50,000
Construction
123,000
Landscaping
9,000
Variable selling costs
8,000

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Land $ 50,000 Construction 123,000 Landscaping 9,000 Variable selling costs 8,000