[Pandarama]

I’m trying to determine if there’s an error in the answer or if I’m just too tired and not catching on correctly. I can see how they came up with it, but it doesn’t make sense based on the information provided. Here’s the question:

Company purchased a tract of land for $900,000. Additional costs of $150,000 were incurred in subdividing the land. 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

The question then asks, “Under the relative sales value method, the cost allocated to each Class A lot should be”

A) $2,625

B) $2,940

C) $3,600

D) $4,200

This is the answer I came up with:

I’m assuming the total costs incurred is $150+900 = $1,050,000.

I then assume that 70% of the costs incurred apply to the residential lots ($1,050,000 * 70% = $735,000)

30% costs incurred apply to the residential lots ($1,050,000 * 30% = $315,000).

Lot class A: 100 lots * $12,000 per lot = $1,200,000

Lot class B: 100 lots * $8,000 per lot = $800,000

Lot class C: 100 lots * $5,000 per lot = $1,000,000

Total lot sales = $1,200,000+800,000+1,000,000 = $3,000,000

Lot A / Total Lot sales = $1,200,000 / $3,000,000 = 40%

40% * total residential costs of $735,000 = 294,000

294,000 / 100 = $2,940 cost per Class A Lot.

For some reason the “correct” answer is $4,200.

This is because they aren’t factoring the 70%… instead they are applying the entire 100% of costs to the residential lots.

I don’t understand. I feel like the “correct” answer is an error. Please help 🙁

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Feels good finishing on my best note. Time to watch the mailbox.