Drew Mellow Builds Custom Homes in Miami

question 72

Essay

Drew Mellow builds custom homes in Miami. Mellow was approached not too long ago by a client about a potential project, and he submitted a bid of $590,000, derived as follows:

Mellow adds a 25% profit margin to all jobs, computed on the basis of total cost. In this client's case the profit margin amounted to $118,000 ($472,000 *25%), producing a bid price of $590,000. Assume that 60% of construction overhead is fixed.
Required:
A. Suppose that business is presently very slow, and the client countered with an offer on this home of $455,000. Should Mellow accept the client's offer? Why?
B. If Mellow has more business than he can handle, how much should he be willing to accept for the home? Why?

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Definitions:

Aeronautical Engineering

A specialized field of engineering focused on the design, development, testing, and production of aircraft and spacecraft.

Standards

Established norms or requirements about technical systems and the uniformity of products and processes, often created by standardization organizations.

Part Number

A unique identifier assigned to a specific part in engineering and manufacturing for identification, ordering, and inventory management.

Assembly Drawing

A detailed drawing showing the components of a machine or a system arranged together as they would be in operating conditions.