I agree, I just twiddled with the forumla and the first couple values were ok, nothing extravagant in, nothing extravagant out. But then using slightly more valuable materials and finer quality the value started to skyrocket. It's all due to the multiplication between the Average Values: once the average value of the furniture (which can get a lot higher much faser) surpasses a base multiplier of ~20 (bronze and superior quality) the base item is worth 200. Multiply again with the average tile value (between 1 and 30ish, unengraved) and you reach thousands, depending on stone type and if its smoothed or not.
And then you only divide by 2.
Figuring that everything multiplies and multiplies further you're going to want to divide by 25 at the very least. That'd give us prices of 20, 28, and 208 or so. That'd make it much easier to have meager rooms for the peasants and require metals for most furniture in noble's quarters (the cheapest being a multiplier of 2 (lead, nickle, copper), followed by obsidian, Trifle pewter at 4, then Fine pewter, Bronze, Galena, and Clear Glass at 5. If we replace all the obsidian furniture in our example broken-formula room with bronze furniture, the values rises to 346 or so, a "plain room." If we rise to silver or iron (and iron is ungodly common, what with all them gobos coming every year) then we can get it to 692, which is decent.
Rose gold furniture gets us to 1591, just barely grand (a room decked out in rose gold cabnitry would be grand by my standards, even if it WAS a broom closet).
Steel and Gold raise us to 2000 even, a nice great room. Decked out in pure platinum, we get 2768, low end grand (and I agree!). Raw adamantine is just enough to pop us to 17300 and into the royal sweetness.