Question

In: Operations Management

Mrs. Tolstoy and her husband, Serge, are planning their dream house. The lot for the house...

Mrs. Tolstoy and her husband, Serge, are planning their dream house. The lot for the house sits high on a hill with a beautiful view of the Appalachian Mountains. The plans for the house show the size of the house to be 2,900 square feet. The average price for a lot and house similar to this one has been $120 per square foot. Fortunately, Serge is a retired plumber and feels he can save money by installing the plumbing himself. Mrs. Tolstoy feels she can take care of the interior decorating. The following average cost information is available from a local bank that makes loans to local contractors and disperses progress payments to contractors when specific tasks are verified as complete. 24 % Excavation and framing complete 8 % Roof and fireplace complete 3 % Wiring roughed in 6 % Plumbing roughed in 5 % Siding on 17 % Windows, insulation, walks, plaster, and garage complete 9 % Furnace installed 4 % Plumbing fixtures installed 10 % Exterior paint, light fixtures installed, finish hardware installed 6 % Carpet and trim installed 4 % Interior decorating 4 % Floors laid and finished

a. What is the estimated cost for the Tolstoy’s house if they use contractors to complete the house?

b. Estimate what the cost of the house would be if the Tolstoys use their talents to do some of the work themselves.

Solutions

Expert Solution

(a)

As per the description, the total area to be constructed is 2,900 sq. ft. The rate per square ft. is $120. Hence, estimates cost for the Tolstoy's house, if they use contractors to the house is 2900*120=$348,000

(b)

1.    Estimated total cost for the house=$348,000- 48,720=$299,280

2.    Estimated savings of Serge's plumbing work=saving from rough plumbing in+savings from plumbing fixtures installed
=(6% of total estimated cost = 0.06*348,000)+(4% of total estimated cost = 0.04*348,000)
=20,880+13,920=$34,800

3.    Rough plumbing in = 6% of total estimated cost = 0.06*348,000=$20,880

4.    Plumbing fixtures installed = 4% of total estimated cost = 0.04*348,000=$13,920

5.    Interior decorating=4% of total estimated cost = 0.04*348,000=$13,920

6.    Total saving=20,880+13,920+13,920=$48,720

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