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 $215 per exchange completed on the planning budget; whereas, the average actual office expense is $178 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 $4,200.

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 $ 520 $ 570 $ 50 U Expenses: Legal and search fees 173 165 8 U Office expenses 178 215 37 F Equipment depreciation 24 30 6 F Rent 60 75 15 F Insurance 12 15 3 F Total expense 447 500 53 F Net operating income $ 73 $ 70 $ 3 F

Explanation / Answer

Solution:-

1. Is the report prepared by the bookkeeper useful as a performance report:-

No

2. Complete the performance report that would help the owner/manager assess the performance of the company in May:-

Please Rate or comment if you have any doubt regarding this solution.

Planning budget Activity variance Flexible budget Revenue and Spending variances Exchange completed 20 25 Revenue 11,400 1,600 F 13,000 1,250 U Expense: Legal and search fees 3,300 1,025 U 4,325 200 U Office expenses 4,300 150 U 4,450 925 F Equipment depreciation 600 0 None 600 150 F Rent 1,500 0 None 1,500 375 F Insurance 300 0 None 300 75 F Total expense 10,000 1,175 U 11,175 1,325 F Net operating income 1,400 425 F 1,825 75 F

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