Six finished lots each support an individual retail value of $48,000. What is the sum of the six individual retail indications, before any bulk discount, selling costs or absorption adjustment?
Correct Answer
D) $288,000
Sum of individual finished-lot indications = 6 × $48,000 = $288,000. The indicated result is $288,000. Common errors: reporting one lot instead of six gives $48,000; counting five lots instead of six gives $240,000; misplacing the decimal in the lot value gives $28,800.
Why This Is the Correct Answer
Option D is correct because six lots at $48,000 each total 6 × $48,000 = $288,000. The question asks only for the sum of the individual retail indications before any discount, selling cost or absorption adjustment.
Why the Other Options Are Wrong
Option A: $28,800
Option A, $28,800, misplaces the decimal in the lot value: 6 × $4,800 = $28,800. The correct sum is 6 × $48,000 = $288,000.
Option B: $48,000
Option B, $48,000, is the value of one lot, not the sum of six. The sum is 6 × $48,000 = $288,000.
Option C: $240,000
Option C, $240,000, counts five lots instead of six: 5 × $48,000 = $240,000. All six lots give 6 × $48,000 = $288,000.
Count lots, then multiply
Gross sellout is simply the number of lots times the value of each lot, before any deductions.
How to use: Use this when a subdivision question asks for the total retail value before discounts.
Exam Tip
Note the words 'before any bulk discount' and do not apply deductions the question excludes.
Common Mistakes to Avoid
- -Treating the sum of retail values as bulk market value
- -Miscounting the number of lots
- -Applying discounts the question tells you to exclude
Concept Deep Dive
Analysis
This question tests the first step of a subdivision analysis: totaling the individual retail lot values. Multiply the number of lots by the individual retail value. Bulk discounts, selling costs and absorption are applied later and are excluded here.
Background Knowledge
In subdivision development analysis, the projected gross sales of the finished lots are estimated first, and development costs are then subtracted to derive land value. A fuller treatment also accounts for selling costs, absorption time and the time value of money. The sum of retail lot values is not the same as the value of the lots sold in bulk to one buyer.
Real-World Application
An appraiser analyzing a small six-lot subdivision finds each finished lot would sell individually for about $48,000. She starts with a gross sellout of $288,000 and then considers selling costs and absorption time to estimate the bulk value.
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