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:

United Nations

An international organization founded in 1945 to promote peace, security, and cooperation among the world's nations.

Brick-And-Mortar

Refers to physical stores or businesses that have a physical presence where customers can visit, as opposed to online or virtual presence.

Online Retailers

Businesses that sell goods or services over the internet, allowing customers to shop from the convenience of their home or any other location with internet access.

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