Question

Larkspur 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 Larkspur 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

Ans- Total Cost= Land sold+ Improved additional cost

=$55,000+$30,000

=$85,000

Relative Sales Value Method

Group	No.of Lots (a)	Price per Lot (b)	Selling Price (c=a*b)	Relative Sale Price (e=c/d)	Total Cost (f)	Cost allocated (g=e*f)	Cost per lot (h=g/a)
1	8	3,600	28,800	18.75%	85,000	15,938	1992
2	17	4,800	81,600	53.12%	85,000	45,152	2,656
3	15	2,880	43,200	28.13%	85,000	23,910	1,594
		Total (d)	153,600		Total	85,000

  

Group	Lots Sold (p)	Price per Lot (q)	Total Sales (r=p*q)	Cost per lot (h=g/a)	Total Cost of Goods (f=p*h)
1	3 (8-5)	3,600	10,800	1992	5,976
2	10 (17-7)	4,800	48,000	2,656	26,560
3	13 (15-2)	2,880	37,440	1,594	20,722
		Total (s)	96,240	Total (t)	53,258

Calculation of Net Income:-

Sales	$96,240
Less: Cost of goods sold (t)	$53,258
Gross Profit	$42,982
Less: Expenses (given)	$17,000
Net Income	$25,982

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