Problem

(L.OBJ. 2) Making special order and pricing decisions [10—15 min] White Builders builds...

(L.OBJ. 2) Making special order and pricing decisions [10—15 min]

White Builders builds 1,300 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 “cookie-cutter” with any upgrades added by the buyer after the sale. White Builders’ costs per developed sub-lot are as follows:

White 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 $206,000 each.

Requirements

1. Which approach to pricing should White Builders emphasize? Why?

2. Will White Builders be able to achieve its target profit levels?

3. Bathrooms and kitchens are typically the most important selling features of a home. White Builders could differentiate the homes by upgrading the bathrooms and kitchens. The upgrades would cost $20,000 per home, but would enable White Builders to increase the selling prices by $35,000 per home. (Kitchen and bathroom upgrades typically add about 150% of their cost to the value of any home.) If White Builders makes the upgrades, what will the new cost-plus price per home be? Should the company differentiate its product in this manner?

Step-by-Step Solution

Request Professional Solution

Request Solution!

We need at least 10 more requests to produce the solution.

0 / 10 have requested this problem solution

The more requests, the faster the answer.

Request! (Login Required)


All students who have requested the solution will be notified once they are available.
Add your Solution
Textbook Solutions and Answers Search