**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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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…
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