Question

Heart & Home Properties is developing a subdivision that includes 440 home lots. The 160 lots in the Canyon section are below a ridge and do not have views of the neighboring canyons and hills; the 280 lots in the Hilltop section offer unobstructed views. The expected selling price for each Canyon lot is $52,000 and for each Hilltop lot is $106,000. The developer acquired the land for $2,200,000 and spent another $2,300,000 on street and utilities improvements. Assign the joint land and improvement costs to the lots using the value basis of allocation and determine the average cost per lot. (Do not round your intermediate calculations.)

Answer 1

	Average lot cost
Canyon section	$              6,158
Hiltop section	$           12,553
Workings:
	Market Value	Percentage of Market Value			Cost to allocate	Allocated cost	Quantity of lots	Average lot cost
		Numerator	Denominator	% of Mkt Value
	(a)	(b)	(c)	(d) = (b) / (c)	(e)	(f) = (d) X (e)	(g)	(h) = (f) / (g)
Canyon section	$     83,20,000	$      83,20,000	$ 3,80,00,000	21.89%	$   45,00,000	$     9,85,263	160	$            6,158
Hiltop section	$ 2,96,80,000	$ 2,96,80,000	$ 3,80,00,000	78.11%	$   45,00,000	$   35,14,737	280	$         12,553
Totals	$ 3,80,00,000			100.00%		$   45,00,000