Allocating Joint Costs
Windsboro Properties is developing a subdivision that includes 400 home lots. The 300 lots in the Canyon section are below a ridge and do not have view of the neighboring canyons and hill; the 100 lots in the Hilltop section offer unobstructed views.
The expected selling price for each Canyon lot is $50,000 and for each Hilltop lot is $90,000. The developer acquired the land for $5,000,000 and spent another $2,000,000 on street and utilities improvements.
Required:
1. Assign the joint land and improvement costs to the lots using the value basis of allocation.
2. Compute the average cost per lot in the Canyon section and in the Hilltop section.
3. Compute the average gross profit realized on the sales of Canyon lots and the Hilltop lots.