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 $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.
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

Explanation / Answer

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

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