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	$	610		$	690		$	80	U
Expenses:
Legal and search fees		245			225			20	U
Office expenses		165			251			86	F
Equipment depreciation		25			30			5	F
Rent		75			90			15	F
Insurance		15			18			3	F
Total expense		525			614			89	F
Net operating income	$	85		$	76		$	9	F

Note that the revenues and costs in the above report are unit revenues and costs. For example, the average office expense is $251 per exchange completed on the planning budget; whereas, the average actual office expense is $165 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 $4,950.

All of the company’s revenues come from fees collected when an exchange is completed.

Required:  

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Exchange Corp
Flexible Budget Performance Report
For the Month Ended May 31
	Actual Results	Revenue and Spending Variances			Flexible Budget	Activity Variances			Planning Budget
Exchanges completed	30			30			25
Revenue	$18,300	$2,400	U	$20,700	$3,450	F	$17,250
Expenses:
Legal and search fees	7,350	600	U	6,750	1,125	U	5,625
Office expenses	4,950	165	F	4,785	1,490	U	6,275
Equipment depreciation	750	0	None	750	0	None	750
Rent	2,250	0	None	2,250	0	None	2,250
Insurance	450	0	None	450	0	None	450
Total expense	15,750	765	F	14,985	365	U	15,350
Net operating income	$2,550	$3,165	U	$5,715	$3,085	F

Answer 1