Question

On July 1, year 1, Allo Company purchased a tract of land for $900,000. Additional costs of $150,000 were incurred in subdividing the land during July through December year 1. Of the tract acreage, 70% was subdivided into residential lots as shown below and 30% was conveyed to the city for roads and a park.

Lot class		Number of lots			Sales price per lot
A		100			$12,000
B		100			8,000
C		200			5,000

Under the relative sales value method, the cost allocated to each Class A lot should be

1. $2,625

2. $2,940

3. $3,600

4. $4,200

Answer 1

Lot class	no. Of lots(a)	price per lot(b)	selling price(a×b)	Relatives sales price(c)	Total cost(d)	Cost allocated(c×d)	Cost per lot
A	100	12,000	1,200,000	1,200,000÷3,000,000	1,050,000	420,000	4,200
B	100	8,000	800,000	800,000÷3,000,000	1,050,000	280,000	2,800
C	200	5,000	1,000,000	1,000,000÷3,000,000	1,050,000	350,000	3,500
			3,000,000

Under relative sales value method, the cost allocated to Class A lot is $4,200

For this, the correct option is 4

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