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 ownerimanager analyze performance. The first such report appears below Exchange Corp Analysis of Revenues and Costs For the Month Ended May 31 Unit Revenues Revenues and Costs and Costs Variances 25 235 257 30 90 18 630 S 80 Legal and search fees Office expenses 135 25 75 22 U 122 F S F 15 F 3 F Rent Total axpense Net operating income 507 $128 s 48 F Note that the revenues and costs in the above report are unit revenues and costs. For example, the average office expense is $257 per exchange completed on the planning budget; whereas, the average actual office expense is $135 per exchange completed. Legal and search fees is a variable cost; office expenses is a mixed cost; and equipment depreclation, rent, and insurance are fixed costs. In the planning budget, the fxed component of office expenses was $5,050. 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, for no effect (i.e., zero variance). Input all amounts as positive values.) indicate the effect of each variance by selecting F for favorable "U"for unfavorable, and "None Exchange Corp Flexiblo Budget Porformance Report For the Month Ended May 31 Actual Results Revenue ands Activity Variances 30 25 Legal and search fees Office expenses Rent Total expense Net operating income

Explanation / Answer

1 No 2 Actual Revenue and spending variances Flexible budget Activity variances Planning budget Exchanges completed 30 30 25 Revenue 19050 2250 U 21300 3550 F 17750 Expenses: Legal and search fees 7710 660 U 7050 1175 U 5875 Office expenses 4050 2650 F 6700 275 U 6425 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 expenses 15210 1990 F 17200 1450 U 15750 Net operating income 3840 260 U 4100 2100 F 2000

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