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	$	570		$	660		$	90	U
Expenses:
Legal and search fees		227			210			17	U
Office expenses		215			242			27	F
Equipment depreciation		25			30			5	F
Rent		75			90			15	F
Insurance		15			18			3	F
Total expense		557			590			33	F
Net operating income	$	13		$	70		$	57	U

Note that the revenues and costs in the above report are unit revenues and costs. For example, the average office expense is $242 per exchange completed on the planning budget; whereas, the average actual office expense is $215 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 $4,800.

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 or no

2. Complete the performance report that would help the owner/manager assess the performance of the company in May.

Exchange Corp.
Flexible Budget Performance Report
For the Month Ended May 31
	Actual Results			Flexible Budget			Planning Budget
Exchanges completed
Revenue
Expenses:
Legal and search fees
Office expenses
Equipment depreciation
Rent
Insurance
Total expense
Net operating income

Answer 1

1
No
2
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	17100	2700	U	19800	3300	F	16500
Expenses:
Legal and search fees	6810	510	U	6300	1050	U	5250
Office expenses	6450	150	U	6300	250	U	6050
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	16710	660	U	16050	1300	U	14750
Net operating income	390	3360	U	3750	2000	F	1750