Exchange Corp. is a company that acts as a facilitator in tax-favored real estat
ID: 2405726 • Letter: E
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:
Note that the revenues and costs in the above report are unit revenues and costs. For example, the average office expense is $215 per exchange completed on the planning budget; whereas, the average actual office expense is $178 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 $4,200.
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?
2. Complete the performance report that would help the owner/manager assess the performance of the company in May.
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 25 20 Revenue $ 520 $ 570 $ 50 U Expenses: Legal and search fees 173 165 8 U Office expenses 178 215 37 F Equipment depreciation 24 30 6 F Rent 60 75 15 F Insurance 12 15 3 F Total expense 447 500 53 F Net operating income $ 73 $ 70 $ 3 F
Explanation / Answer
Actual Revenue and spending variances Flexible budget Activity variances Planning budget Exchanges completed 25 25 20 Revenue 13000 1250 U 14250 2850 F 11400 Expenses Legal and search fees 4325 200 U 4125 825 U 3300 Office expenses 4450 125 U 4325 25 U 4300 Equipment depreciation 600 0 None 600 0 None 600 Rent 1500 0 None 1500 0 None 1500 Insurance 300 0 None 300 0 None 300 Total expenses 11175 325 U 10850 850 U 10000 Net operating income 1825 1575 U 3400 2000 F 1400
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