Pleasant Hills Properties is developing a golf course subdivision that includes 250 home lots; 100 lots are golf course lots and will sell for $95,000 each; 150 are street frontage lots and will sell for $65,000.The developer acquired the land for $1,800,000 and spent another $1,400,000 on street and utilities improvement.Compute the amount of joint cost to be allocated to the street frontage lots using value basis.(Round your intermediate percentages to 2 decimal places.)
A)$1,920,000.
B)$720,000.
C)$1,620,800.
D)$1,579,200.
E)$1,080,000.

Question

Quizplus · Accepted Answer

The total cost of the project is $3,200,000 ($1,800,000 for land and $1,400,000 for improvements). The value of golf course lots is $9,500,000 (100 lots x $95,000), and the value of street frontage lots is $9,750,000 (150 lots x $65,000). Using value basis, we allocate joint cost based on the proportion of each product's value to the total value.

The total value is $19,250,000 ($9,500,000 + $9,750,000).

The proportion of the value of street frontage lots to the total value is 9,750,000 ÷ 19,250,000 = 0.5065 or 50.65%.

Therefore, the amount of joint cost allocated to the street frontage lots is $1,400,000 x 50.65% = $709,800.

However, this is only the joint cost allocation for the street frontage lots based on value basis. The total joint cost allocation for the entire project would be $3,200,000 - $1,800,000 - $709,800 = $690,200.

Thus, the correct answer is C) $1,620,800.

Pleasant Hills Properties Is Developing a Golf Course Subdivision That