Alliance Realty Bought a 2,000 Acre Island for $10,000,000 and Divided

Essay

Alliance Realty bought a 2,000 acre island for $10,000,000 and divided it into 200 equal size lots. As the lots are sold they are cleared at an average cost of $5,000. Storm drains and driveways are installed at an average cost of $8,000 per site. Sales commissions are 10 percent of selling price. Administrative costs are $850,000 per year. The average selling price was $160,000 per lot during the year when 50 lots were sold.
During the subsequent year, the company bought another 2,000 acre island and developed it exactly the same way. Lot sales in the second year totalled 300 with an average selling price of $160,000. All costs were the same as in the first year.
Required:
Prepare income statements for both years using both absorption and variable costing methods. Use the gross margin format for the absorption method and the contribution margin format for the variable costing method.