Question

Ponderosa Development Corporation (PDC) is a small real estate developer that builds only one style of house. The selling price of the house is $115,000. Land for each house costs $55,000 and lumber, supplies and other materials run another $28,000 per house. Total labor costs are approximately $20,000 per house.
Ponderosa leases office space for $2000 per month. The cost of office supplies, utilities and leased equipment runs another $3000 per month. The one sales person of PDC is paid a commission of $2000 on the sale of each house.

PDC has a seven permanent employees whose monthly salaries is given below

Monthly Salaries
President $10,000
VP, Development $6000
VP, Marketing $4500
Project Manager $5500
Controller $4000
Office Manager $3000
Receptionist $2000
Part A: Write an expression for the cost of building x houses.

Part B: Write an expression for the revenue when selling x houses

Part C: Write an expression for the profit when selling x houses. Simplify your expression to the form P(x)=ax-b

Part D: What is the profit per house?

Part E: What is the breakeven point for monthly sales of houses? Include just the numeric value.

Part F: What is the profit ($) if 12 houses are sold?

Part G: For the breakeven point, what is the unit?

Part H: PDC receives a bid to build 20 units in a new development. Identify the correct response to help the manager make a decision.

Answer 1

Answer:

A) cost of building: land + lumber, supplies and other materials + labor= $55,000+$28,000+$20,000= $103,000

B) sale price x quantity sold

C) profit when selling the houses= price-cost of building-commissions

D) profit per house ($115,000-103,000-2,000=$10,000)

E) 8

F) $80,000

G) The unit is houses, the company do not loss nor win any money if sells 8 houses

H) The price for the bid must be above $107,000 to PDC earn money

Explanation:

A) For the cost of building must be added all direct cost as land, materials and labor

B) Revenue is the income generated from sale of goods or services

C) Profit is the money that is earned in trade or business after paying the costs of producing and selling goods

E) Break-even point is the number of units you need to sell to not loose money and achieve exactly $0 in profit

F) revenues 12*115,000= $1,380,000

- direct cost 12*105,000=$1,260,000

- fixed cost 40,000

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profit $80,000

H) direct cost 20 units*$105,000=$2,100,000

Fixed costs=$40,000

$2,100,000 +$40,000=$2,140,000 is the total of costs to be covered by price diveded for 20 units=$107,000