Question

Carla Realty Corporation purchased a tract of unimproved land for $55,000. This land was improved and subdivided into building lots at an additional cost of $30,000. These building lots were all of the same size but owing to differences in location were offered for sale at different prices as follows.

Group		No. of Lots			Price per Lot
1		8			$3,600
2		17			4,800
3		15			2,880

Operating expenses for the year allocated to this project total $17,000. Lots unsold at the year-end were as follows.

Group 1		5 lots
Group 2		7 lots
Group 3		2 lots

At the end of the fiscal year Carla Realty Corporation instructs you to arrive at the net income realized on this operation to date. (Round ratios for computational purposes to 4 decimal places, e.g. 78.7234% and final answer to 0 decimal places, e.g. 5,845.)

Net income

$

Answer 1

Relative sales value method
	No of	* price per	= selling	Relative sales price		* total	= cost	cost per
Group	lots	lot	price			cost	allocated	lot
1	8	3,600	28800	28800/153600		85,000	15938	1992
2	17	4,800	81600	81600/153600		85,000	45156	2656
3	15	2,880	43200	43200/153600		85,000	23906	1594
			153600				85000
	lots	* price	total		Cost per	ttoal cost
	sold	per lot	sales		lot	of goods sold
Group
1	3	3,600	10800		1992	5977
2	10	4,800	48000		2656	26563
3	13	2,880	37440		1594	20719
			96240			53258
		Calculation of Net income
		Sales			96240
		less cost of goods sold			53258
		Gross profit			42982
		Expenses			17,000
		Net income			25982	Answer