The Great Lakes Company specializes in real estate. Great Lakes purchases large tracts of land in a city’s outlying areas. The company improves the land by putting in roads, sewer systems, and so on, and then subdivides the improved property into parcels sold to individual homeowners and homebuilders. To make the property more attractive, Great Lakes always designates some land as green-space (i.e., parks and other recreational areas). It also reserves land for an elementary school, a community center, and other “publicuse” property. Finally, Great Lakes reserves about 5% of the property for retail use (i.e., for neighborhood stores). From start to finish, a typical deal consumes anywhere from three to seven years.
In a recent transaction, Great Lakes spent $1.6 million to buy 160 acres of property near a fast-growing city. It then spent an additional $1.4 million to develop the property. In line with its usual practice, the firm reserved 20 acres for green space, 4 acres for an elementary school, 3 acres for a church, and 3 acres for a community center. In addition, roads and out-lots (i.e., unusable parcels) consumed 5 acres. Thus, the firm could sell 125 acres to homeowners, to homebuilders, and as retail space.

Required:
a. Discuss two reasons why Great Lakes may wish to allocate its costs to individual parcels of land.
b. List at least two bases Great Lakes could use to allocate its costs to the individual parcels of land.
c. Considering the differences among buyers (school district, church, home builder, retailer), list at least three criteria that Great Lakes would employ to choose the allocation basis. Explain.