Problem 6 Doran Realty Company purchased a plot of ground for $900,000 and spent
ID: 2601628 • Letter: P
Question
Problem 6
Doran Realty Company purchased a plot of ground for $900,000 and spent $2,100,000 in developing it for building lots. The lots were classified into Highland, Midland, and Lowland grades, to sell at $120,000, $90,000, and $60,000 each, respectively.
Instructions
1. Complete the table below to allocate the cost of the lots using a relative sales value method.
No. of Selling Total % of Apportioned Cost
Grade Lots Price Revenue Total Sales Total Per Lot
Highland 20 $ $ $ $
Midland 40 $ $
Lowland 100 $ $
160 $ $
2. Compute the gross profit for each grade and the total gross profit.
Explanation / Answer
(1).
Grade
No. of Lots
Selling price
Total Revenues
% of Total Sales
Apportioned Cost
Total
Per Lot
Highland
20
$120000
$2400000
20%
$600000
$30000
Midland
40
$90000
$3600000
30%
$900000
$22500
Lowland
100
$60000
$6000000
50%
$1500000
$15000
160
$12000000
$3000000
(2).
Gross profit of Highland;
(Total revenue – Total costs)
($2400000 – $600000) = $1800000
Gross profit of Midland;
(Total revenue – Total costs)
($3600000 – $900000) = $2700000
Gross profit of Lowland;
(Total revenue – Total costs)
($6000000 – $150000) = $4500000
Thus Total Gross Profit will be as follow;
($1800000 + $2700000 + $4500000) = $9000000
Grade
No. of Lots
Selling price
Total Revenues
% of Total Sales
Apportioned Cost
Total
Per Lot
Highland
20
$120000
$2400000
20%
$600000
$30000
Midland
40
$90000
$3600000
30%
$900000
$22500
Lowland
100
$60000
$6000000
50%
$1500000
$15000
160
$12000000
$3000000