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: Exchange Corp. Analysis of Revenues and Costs For the Month Ended May 31 Planning Unit and Costs and Costs Variances Actual Budget Unit Revenues Revenues Exchanges completed 50 $ 385 184 40 $ 395 10 U Revenue Expenses: Legal and search fees Office expenses Equipment depreciation Rent Insurance 112 36 344 165 135 10 45 19 U 23 F 2 F 9 F Total expense Net operating income 360 $ 35 16 F $ 6 F S 41 Note that the revenues and costs in the above report are unit revenues and costs. For example, the average office expense is $135 per exchange completed on the planning budget; whereas, the average actual office expense is $112 per exchange completed

Explanation / Answer

Actual Revenue and spending variances Flexible budget Activity variances Planning budget Exchanges completed 50 50 40 Revenue 19250 500 U 19750 3950 F 15800 Expenses: Legal and search fees 9200 950 U 8250 1650 U 6600 office expenses 5600 150 U 5450 50 U 5400 Equipment depreciation 400 0 None 400 0 None 400 Rent 1800 0 None 1800 0 None 1800 Insurance 200 0 None 200 0 None 200 Total expenses 17200 1100 U 16100 1700 U 14400 Net operating income 2050 1600 U 3650 2250 F 1400

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