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 $233 per exchange completed on the planning budget; whereas, the average actual office expense is $190 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 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 $ 590 $ 630 $ 40 U Expenses: Legal and search fees 209 195 14 U Office expenses 190 233 43 F Equipment depreciation 24 30 6 F Rent 60 75 15 F Insurance 12 15 3 F Total expense 495 548 53 F Net operating income $ 95 $ 82 $ 13 F e Chegg Study Guided S: × e Exchange Corp. Is A Con X Connect W Social contract-Wikipe/X C Secure ! https://newconnect.mheducation.com/flow/connect.html Apps Q Geology Exam 2, Cha Ch. 9: Homework Saved Help Save & Exit Submit Check my work 2 Required 1 Required 2 Complete the 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.) 12 points Exchange Corp port Flexible Budget Performance Re For the Month Ended May 31 eBook Flexible Bud Print Actual Results Bud Revenue Legal and search fees Office expenses Equipment depreciation Rent Total expense Net operating income Mc Prev 2012 Next O Type here to search 10:12 PM 11/28/2017 2

Explanation / Answer

1. No, this report is not useful as a performance report.

2. Flexible Budget Performance Report

Actual Results Expenditure variance Flexible Budget Activity variance Planning Budget Exchanges completed 25 25 20 Revenue $590 $197.5 U $787.5 $157.5 F $630 Expenses: Legal and search fees 209 34.75 F 243.75 48.75 U 195 Office expenses 190 90 F 280 47 U 233 Equipment depreciation 24 6 F 30 None 30 Rent 60 15 F 75 None 75 Insurance 12 3 F 15 None 15 Total expense 495 148.75 F 643.75 95.75 U 548 Net operating income $95 $48.75 U $143.75 $61.75 F $82

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