Question

A company purchases a 17,160-square-foot commercial building for $385,000 and spends an additional $56,000 to divide the space into two separate rental units and prepare it for rent. Unit A, which has the desirable location on the corner and contains 3,510 square feet, will be rented for $1.00 per square foot. Unit B contains 13,650 square feet and will be rented for $0.60 per square foot. How much of the joint cost should be assigned to Unit B using the value basis of allocation

Answer 1

Answer: $‭308,700‬

Step-by-step explanation:

First find proportion of rental income that comes from Unit B out of the total:

= (13,650 * 0.60) / [(3,510 * 1) + (13,650 * 0.60)]

= 8,190 / 11,700

= 70%

Joint cost = 385,000 + 56,000

= $441,000

Proportion to be assigned to Unit B:

= 441,000 * 70%

= $‭308,700‬