A 3,000 square foot warehouse costs $62 per square foot with $45,000 of site improvements. Cost new is:
Correct Answer
C) $231,000
Why this is correct: The cost new is the sum of the building cost and the site improvements. Building cost is calculated as 3,000 sq ft × $62/sq ft = $186,000. Adding the $45,000 for site improvements yields $231,000. Why the other choices are wrong: $135,000 excluding the building is wrong because it incorrectly states the site improvement cost as the total cost. $186,000 for the building alone is wrong because it omits the site improvements. $321,000 pricing site work per foot is wrong because it incorrectly applies the per-square-foot building rate to the site improvements. Exam tip: Site improvements are a separate line item; do not roll them into the building's per-square-foot cost.
Why This Is the Correct Answer
The building costs 3,000 square feet x $62 = $186,000. Site improvements are given as a lump sum of $45,000 and are added once, without any square-foot multiplication. Total cost new is $231,000. Both supplied inputs are used exactly once and in the form the stem provides them.
Why the Other Options Are Wrong
Option A: $135,000 excluding the building
$135,000 is $45 multiplied by the 3,000 square feet, which treats the site improvement figure as a rate rather than the lump sum it is, and then omits the building entirely. Two mistakes stack: a misread unit and a missing component. The $45,000 in the stem is stated as a total dollar amount, not a price per foot.
Option B: $186,000 for the building alone
$186,000 is the building alone and simply stops before adding site improvements. Site improvements are depreciable improvements included in cost new, not part of land value. The question asks for cost new of the whole, so leaving a supplied figure unused is the signal that the answer is incomplete.
Option D: $321,000 pricing site work per foot
$321,000 adds the building at $62 per foot to site work priced at $45 per foot, $186,000 plus $135,000. Applying a per-foot rate to a component given as a lump sum inflates it by a factor of three here. Site improvement costs scale with paving area and site conditions, not with building square footage.
Rate Times Area, Lump Stays Lump
A figure written with 'per square foot' gets multiplied; a figure written as a plain dollar amount gets added. Two symbols, two operations, and the exam builds a distractor from mixing them up every single time.
How to use: Before computing, label each number in the stem as either a rate or a lump sum. Multiply only the rates, add only the lump sums, and your total will match the credited option.
Exam Tip
When two dollar figures appear in a cost stem, check the units on each; the trap answer usually multiplies the one that should have been added.
Common Mistakes to Avoid
- -Multiplying a lump-sum site improvement figure by building square footage
- -Omitting site improvements from cost new
- -Reporting building cost only when the question asks for total cost new
Concept Deep Dive
Analysis
Cost new is assembled from separately priced components, and the unit of comparison attached to each rate must match the component it prices. A per-square-foot building rate applies to building area only. Site improvements such as paving, striping, truck aprons, fencing, lighting and utility connections are estimated as their own lump sum because they bear no fixed relationship to building footprint. This item punishes two habits: forgetting a component and stretching a per-square-foot rate across a component it was never meant to cover. On warehouse and industrial problems the site work is often a large share of total cost, so the error is not trivial.
Background Knowledge
You need to know that cost new includes the building plus all site improvements, and that site improvements are typically estimated as a lump sum rather than derived from building area. You also need to check whether a dollar figure in a stem is a rate or a total before using it.
Real-World Application
Costing a small distribution warehouse, the appraiser prices the shell from a cost service on a per-square-foot basis and then adds a separate allowance for the asphalt yard, dock aprons, fencing and site lighting, each with its own shorter economic life.
More Cost Approach Questions
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Total accrued depreciation includes:
Next Question
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