George Jettson Builds Custom Homes in Cincinnati

question 55

Essay

George Jettson builds custom homes in Cincinnati. Jettson was approached not too long ago by a client about a potential project, and he submitted a bid of $590,000, derived as follows:
Jettson 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 Jettson accept the client's offer? Why?
B. If Jettson has more business than he can handle, how much should he be willing to accept for the home? Why?

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Definitions:

Exclusive Possession

Refers to the right of a tenant or landholder to use and control their leased or owned property without interference.

Chattel

An item of personal property that is movable, as opposed to real estate or real property.

Tangible Personal Property

Physical items owned by individuals or businesses, excluding real estate and intangible assets.

Intellectual Property

Legal rights that result from intellectual activity in the industrial, scientific, literary, and artistic fields.