Ponderosa Development Corporation (PDC) is a small real estate developer that bu

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

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.

Monthly Salaries President $10,000 VP, Development    $6000 VP, Marketing    $4500 Project Manager    $5500 Controller $4000 Office Manager $3000 Receptionist $2000

Explanation / Answer

A) cost of building x houses = x(55000 + 28000 + 20000)

= 103000x

B) revenue while selling x houses = 115000x

C) profit while selling x houses

= 115000x - 103000x - 2000x - (2000+5000+10000+6000+4500+5500+4000+3000+2000)

= 10,000x - 42000

D) let x be the number of houses sold.

Then, profit per house = (10000x-42000)/x

= 10000 - (42000/x)

E) breakeven point is when profit is 0

So, 10000x - 42000 = 0

So, x = 4.2

F) if 12 houses are sold, profit = 12x10000 - 42000 = $78000

G) for breakeven, 5 units have to be sold

H) 20 units is above breakeven point, so, it is recommended to take up the project.

The profit will be 20x10000-42000 = $158000

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