Question

Exchange Corp. is a company that acts as a facilitator in tax-favored real estate swaps. Such swaps, know as 1031 exchanges, permit participants to avoid some or all of the capital gains taxes that would otherwise be due. The bookkeeper for the company has been asked to prepare a report for the company to help its owner/manager analyze performance. The first such report appears below: Exchange Corp Analysis of Revenues and Costs For the Month Ended May 31 Actual Unit Revenues and Costs Planning Budget Unit Revenues and Costs Variances Exchanges completed 30 25 Revenue $ 635 $ 710 $ 75 U Expenses: Legal and search fees 257 235 22 U Office expenses 135 257 122 F Equipment depreciation 25 30 5 F Rent 75 90 15 F Insurance 15 18 3 F Total expense 507 630 123 F Net operating income $ 128 $ 80 $ 48 F Note that the revenues and costs in the above report are unit revenues and costs. For example, the average office expense is $257 per exchange completed on the planning budget; whereas, the average actual office expense is $135 per exchange completed. Legal and search fees is a variable cost; office expenses is a mixed cost; and equipment depreciation, rent, and insurance are fixed costs. In the planning budget, the fixed component of office expenses was $5,050. All of the company’s revenues come from fees collected when an exchange is completed. Required: 1. Is the report prepared by the bookkeeper useful as a performance report? Yes No 2. Complete a performance report that would help the owner/manager assess the performance of the company in May. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.) rev: 04_21_2017_QC_CS-86157 References

Answer 1

1
NO, the report prepared by bookkeeper is not a useful performance report
2
	Actual results	Revenue and spending variances		Flexible budget	Activity variances		Planning budget
Exchanges completed	30			30			25
Revenue	19050	2250	U	21300	3550	F	17750
Expenses:
Legal and search fees	7710	660	U	7050	1175	U	5875
Office expenses	4050	2650	F	6700	275	U	6425
Equipment Depreciation	750	0	None	750	0	None	750
Rent	2250	0	None	2250	0	None	2250
Insurance	450	0	None	450	0	None	450
Total expense	15210	1990	F	17200	1450	U	15750
Net operating income	3840	260	U	4100	2100	F	2000
Office expenses:
Variable component = (6425-5050)/25 = $55
Office expenses in flexible budget = 5050+(30*55) = $6700