Exchange Corp. is a company that acts as a facilitator in tax-favored real estat

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 $230 per exchange completed on the planning budget; whereas, the average actual office expense is $193 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 $4,500.

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 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.)

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 $ 580 $ 620 $ 40 U Expenses: Legal and search fees 203 190 13 U Office expenses 193 230 37 F Equipment depreciation 24 30 6 F Rent 60 75 15 F Insurance 12 15 3 F Total expense 492 540 48 F Net operating income $ 88 $ 80 $ 8 F

Explanation / Answer

No,this is not useful as a performance report 2 Actual Revenue and spending variances Flexible budget Activity variances Planning budget Exchanges completed 25 25 20 Revenue 14500 1000 U 15500 3100 F 12400 Expenses: Legal and search fees 5075 325 U 4750 950 U 3800 Office expenses 4825 200 U 4625 25 U 4600 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 expense 12300 525 U 11775 975 U 10800 Net operating income 2200 1525 U 3725 2125 F 1600

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