Question

Heart & Home Properties is developing a subdivision that includes 440 home lots. The 180 lots in the Canyon section are below a ridge and do not have views of the neighboring canyons and hills; the 260 lots in the Hilltop section offer unobstructed views. The expected selling price for each Canyon lot is $56,000 and for each Hilltop lot is $99,000. The developer acquired the land for $2,400,000 and spent another $2,000,000 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

calculation of value of home lots :

particular	canyon lot	hiltop lot	total
no. of home lot	180	260	440
selling priice per lot	$56000	$99000
total sales	180 x $56000 = $10080000	260 x $99000 = $25740000	$35820000

total cost of home lots :

joint land cost	$2400000
add : improvement costs	$2000000
total cost	$4400000

allocation of joint land cost and improvement cost using value basis :

particular	canyon lot	hiltop lot	total
value of home lots	$10080000	$25740000	$35820000
total cost (joint land cost and improvement cost)	$4400000 x $10080000/$35820000 =$1238190.95	$4400000 x $25740000/$35820000 =$3161809.05	$4400000

calculation of average cost per lot:

particular	canyon lot	hiltop lot
no. of home lot	180	260
total cost	$1238190.95	$3161809.05
average cost per lot (total cost / no. of home lot)	$1238190.95/180 = $6878.84	$3161809.05/260 = $12160.80

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