An appraiser is estimating curable physical deterioration and treats an item as curable only when the full benefit of curing it exceeds the full cost. Item A would cost $4,800 to cure, with a benefit of $7,200. Item B would cost $22,000 to cure, with a benefit of $11,000. There are no other costs or benefits. What is the total cure cost of the items that qualify?
Correct Answer
B) $4,800
Item A: 4800<7200 eligible; Item B: 22000>11000 ineligible; subtotal=4800. Common errors: including the item whose cost exceeds its benefit gives $26,800; reversing the test and taking item B's cost gives $22,000; using item A's net benefit instead of its cost gives $2,400.
Why This Is the Correct Answer
Option B is correct because only Item A meets the test ($4,800 cost is less than its $7,200 benefit). Item B fails because its $22,000 cost exceeds its $11,000 benefit. The question asks for cure costs, so the subtotal is $4,800.
Why the Other Options Are Wrong
Option A: $2,400
Option A, $2,400, is wrong because it is Item A's net benefit ($7,200 - $4,800) rather than its cure cost. The eligible subtotal is $4,800.
Option C: $22,000
Option C, $22,000, is wrong because it reverses the test and takes Item B's cure cost, though Item B's $22,000 cost exceeds its $11,000 benefit. Only Item A qualifies, so the subtotal is $4,800.
Option D: $26,800
Option D, $26,800, is wrong because it adds both items ($4,800 + $22,000), including Item B even though its $22,000 cost exceeds its $11,000 benefit. Only $4,800 is eligible.
Cure only if it pays
Keep an item only when its benefit beats its cost, then add up the costs of the items you kept.
How to use: Use this when a question asks for the eligible cure-cost subtotal from several items.
Exam Tip
After screening items, total their costs, not their benefits or net gains. Distractors often use the wrong item or the right item's wrong figure.
Common Mistakes to Avoid
- -Including items whose cost exceeds their benefit
- -Reporting the benefit or net benefit instead of the cure cost
- -Treating any physically fixable item as curable without the cost test
Concept Deep Dive
Analysis
This question tests the curable test applied to physical items. Item A costs $4,800 and adds $7,200, so its benefit exceeds its cost and it qualifies. Item B costs $22,000 but adds only $11,000, so it does not. The eligible subtotal is Item A's cost, $4,800.
Background Knowledge
An element of physical deterioration is considered curable when the cost to correct it is less than the economic benefit that results. Curable items are typically measured by cost to cure, while items failing the test are treated as incurable.
Real-World Application
An appraiser finds that repainting a house costs less than the value it would add, while replacing an expensive but serviceable feature would cost more than buyers would pay. The appraiser counts the repainting cost as curable physical deterioration and handles the other item separately.
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