Gorrells and Sunn builds high-quality homes ranging in price from $200,000 to $1 million. John Ellis, a local physician, has asked Gorrells and Sunn to show him some house plans. Dr. Ellis has selected a plan that calls for $300,000 in building materials, $180,000 in labor, and $40,000 in add-ons, but he doesn”t want to pay more than $575,000 for his home. Gorrells and Sunn typically prices its homes based on the total cost of construction plus 15%.
Required
- What price would Gorrells and Sunn normally quote for this house plan?
- What is the target cost Gorrells and Sunn would need to meet to sell the house for $575,000 at a 15% markup?
- What could Gorrells and Sunn do to meet the target cost in part (2)?