Question

Land (which had an old building on it) was acquired as a new factory site for $560,000. As of the transaction date, the land’s assessed tax value was $308,580 and the building’s tax value was $101,800. Shortly after acquisition, the old building was demolished at a cost of $27,600 and the new factory was built. The total costs of construction were $339,500. A number of additional costs were also incurred: Architectural design fees $14,900 Building permit fee $ 2,500 Paving of parking lot $15,000 Sidewalk concrete $4,000 Permanent landscaping (oak trees) $25,000 Goods & Services Tax (GST) $49,425

Answer 1

The acquisition and development costs of a new factory site include the purchase price, demolition, construction, additional fees, and taxes such as GST. The cost of land and other factors of production must be analyzed for their impact on a business's overall profitability and cost structure.

Step-by-step explanation:

The acquisition and development of land for a new factory site involve significant costs that are essential to understand when running a business. This includes not just the purchase price, but also additional costs such as demolition, construction, fees, and landscaping. Understanding the full picture of these expenses is critical to business profitability and decision-making processes. When acquiring land for industrial purposes, factors such as the cost of land, the availability of raw materials, and accessibility for transportation must be considered to ensure the location contributes positively to the factory's profitability. Furthermore, costs associated with building permits, architectural design fees, and taxes like the Goods & Services Tax (GST) also play a crucial role in the total investment needed for the project.

The cost of land and factors of production play a major role in the overall cost structure for a new factory. When determining where to build, it is essential to consider not just the initial land and building cost, but also ongoing concerns such as ease of truck access and the expense of bringing in raw materials. Breaking down the details of the scenario presented, the land and old building had a combined assessed tax value, but the purchase price for the purpose of establishing a new factory was $560,000. The demolition of the old building and the construction of the new factory, along with additional costs such as design fees, permits, parking lot paving, and landscaping, lead to a substantial investment. The GST, an often-overlooked cost, adds a significant amount to the expenditure. All these considerations are critical when determining the feasibility and potential profitability of the factory site.