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

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section14.A: Breakeven Analysis

Problem 5P

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Smith 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. Smith Builders' costs per developed sublot are as follows: 1(Click the icon to view the costs.) Smith 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 $206,000 each. Assume the company has no fixed costs. Read the requirements2. Requirement 1. Which approach to pricing should Smith Builders emphasize? Why? Smith Builders will need to emphasize a target-costing approach to pricing because they are price-takers. This means Smith will not have much control over pricing because the tract homes are not unique and face stiff competition. Requirement 2. Will Smith Builders be able to achieve…
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…
Grove Audio is considering the introduction of a new model of wireless speakers with the following price and cost characteristics. Sales price $ 439.00 per unit Variable costs 199.00 per unit Fixed costs 687,000 per year Assume that the projected number of units sold for the year is 4,200. Consider requirements (b), (c), and (d) independently of each other. Required: What will the operating profit be? What is the impact on operating profit if the sales price decreases by 20 percent? Increases by 10 percent? What is the impact on operating profit if variable costs per unit decrease by 10 percent? Increase by 20 percent? Suppose that fixed costs for the year are 20 percent lower than projected, and variable costs per unit are 10 percent higher than projected. What impact will these cost changes have on operating profit for the year? Will profit go up? Down? By how much?
1. ABC Taxi has an average fixed cost of $8,000 a year for each car. Each mile driven has variable cost $.40 and collect fares of $.60. How many miles a year does each car have to travel before making profit? a. ABC company is contemplating adding a new line of product, which will require leasing new equipment for a monthly payment of $12,000. Variable costs would be $15.00 per product, and selling price per product is $40. What would be profit or loss if business sell 600 of these products? b. If 800 quantity of products can be sold, and a profit target is $10,000, what price should be charged for each product?
A privately-owned summer camp for youngsters has the following data for a 12-week session: Charge per camper: $480 per week Fixed costs: $192,000 per session Variable cost per camper: $320 per week Сарасity: 200 campers a) Develop the mathematical relationships for total cost and total revenue. b) What is the total number of campers that will allow the camp to just breakeven? c) What if the profit or loss for the 12-week session if the camp operates at 80% сараcity? d) What are the marginal and average costs per camper at 80% capacity? e) Would it be ethical to charge campers different rates depending on their family's socioeconomic status? Identify and describe two points pro and two points cons for such a policy. f) Draw cash flow diagram for this problem.
Builders builds 1,500-square-foot starter tract homes in the fast-growing suburbs of Chicago. 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. Bennett Builders' cost per developed sublot are as follows: Land. . . . . . . . . . . . . . . . . . . . .$54,000 Construction. . . . . . . . . . . . . . .$126,000 Landscaping. . . . . . . . . . . . . . . $6,000 Variable marketing costs. . . . . .$2,000 Bennett Builders would like to earn a profit of 14% of the variable cost of each home sale. Similar homes offered by competing builders sell for $206,000 each. 1. Which approach to pricing should Bennett Builders emphasize? Why? 2. Will Bennett 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. Bennett Builders could differentiate the homes by upgrading…
Dominic 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 “cookie-cutter,” with any upgrades added by the buyer after the sale. Dominic Builders’ costs per developed sublot are as follows in the graph below: Dominic Builders would like to earn a profit of 14% of the variable cost of each home 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 computations. 3. Bathrooms and kitchens are typically the most important selling features of a home. Dominic Builders could differentiate the homes by upgrading bathrooms and kitchens. The upgrades would cost $20,000 per home but would enable the company to increase the selling prices by $35,000 per home (in general, kitchen and bathroom…
2. Vincent is leasing 100 units of market space in zamboanga city. He computed his fixed costscat P320,000 monthly. He is leasing each space at P14,000 monthly. He spends aroundvP2,950 per rented space monthly for the maintenance. How many spaces must be rented monthly to breakeven? If vincent is targeting a minimum monthly profit of P500,000, how many spaces must be leased? 3. Jane manufactures soft leathers. She spends around P315 per square foot of leather produced and sells it at P300 per square foot. Also, she knows that her fixed costs amount to P1,400,000. What is the minimum number of square feet sold to be able to breakeven? If she only sold 6,000 square feet of leather, did she earn profit? If yes, how much? If no, how much money did she lose?
Break-even analysis Show all your solutions. 1. The Fixed Cost is P4,000. The material and labor costs are P4.00 per unit. The supplier’s selling price is P5.00 per unit. The break-even point is 2. Production has indicated that they can produce widgets at a cost of P4.00 each if they lease new equipment at a cost of P10,000. Marketing has estimated the number of units they can sell at a number of prices (Php4000) Which price/volume option will allow the firm to avoid losing money on this project? 3. A food repacking company estimates sales figures of Php15.5M for their most popular item. Assuming that the item sells at Php375 each, fixed costs are Php4M, and variable cost are Php215 per unit repacked. a. What is the break-even sales volume? b. Find the corresponding profit figures if the actual sales will be as estimated. 4. A manufacturer can sell a certain health supplement for P1,100 per unit. Its total cost consists of a fixed overhead of Php75,000 plus production costs of…
A company is negotiating with a potential supplier for the purchase of 100,000 widgets. The company estimates that the supplier’s variable costs are $5 per unit andthat the fixed costs, depreciation, overhead, and so on, are $50,000. The supplierquotes a price of $10 per unit. Calculate the estimated average cost per unit. do youthink $10 is too much to pay? Could the purchasing department negotiate a betterprice? How?
Skip Consulting helped Schmidt Roofers put various cost saving techniques into place. Thecontract specifies that Skip will receive a flat fee of $70,000 and an additional $19,000 if Schmidtattains a target amount of cost savings. Skip estimates a 20% chance that Schmidt will reach thetarget for cost savings. Assuming that Skip uses the expected-value approach, what is thetransaction price for this product?a. $19,000b. $70,000c. $73,800d. $89,000
Schylar Pharmaceuticals, Inc., plans to sell 130,000 units of antibiotic at an average price of 22 each in the coming year. Total variable costs equal 1,086,800. Total fixed costs equal 8,000,000. (Round all ratios to four significant digits, and round all dollar amounts to the nearest dollar.) Required: 1. What is the contribution margin per unit? What is the contribution margin ratio? 2. Calculate the sales revenue needed to break even. 3. Calculate the sales revenue needed to achieve a target profit of 245,000. 4. What if the average price per unit increased to 23.50? Recalculate: a. Contribution margin per unit b. Contribution margin ratio (rounded to four decimal places) c. Sales revenue needed to break even d. Sales revenue needed to achieve a target profit of 245,000