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 Actual
Unit Revenues
and CostsPlanning Budget
Unit Revenues
and CostsVariancesExchanges completed 25  20    Revenue$560 $600 $40UExpenses:         Legal and search fees 191  180  11UOffice expenses 187  224  37FEquipment depreciation 24  30  6FRent 60  75  15FInsurance 12  15  3FTotal expense 474  524  50FNet operating income$86 $76 $10F

Nate that tre revenues andl coats n the sbevs 18t par echange cemplted eclonene osgneceton nent, and insuronce are foaed conss, ls the planning budget, the fised camperent of office spenans wass 54,400. Required of each variance by sleein'?" for tavorable, rter unfavorabi, and won Flax tre Budget Perfarmance Report VariancesPa

Explanation / Answer

Particulars Planning budget Flexible budget Actual results Activity variance Spending variance Exchanges completed 20 25 Revenue 12000 15000 14000 3000 F 1000 U Expenses: Legal and search fees 3600 4500 4775 900 U 275 U Office expenses 4480 4500 4675 20 U 175 U Equipment depreciation 600 600 600 0 Rent 1500 1500 1500 0 Insurance 300 300 300 0 Total expenses 10480 11400 11850 920 U 450 U Net Operating Income 1520 3600 2150 2080 F 1450 U *Calculation: Planning budget Flexible budget Actual results A B C Revenue (20*600) (25*600) (25*560) Expenses: Legal and search fees (180*20) (180*25) (191*25) Office expenses (224*20) [4400+(80/20*25)] (187*25) Equipment depreciation (30*20) (30*20) (24*25) Rent (75*20) (75*20) (60*25) Insurance (15*20) (15*20) (12*25) (524*20) Activity variance       =     Flexible budget - planning budget Spending variance    =     Flexible budget - actual results *Planning office expense have 4400 fixed & the excess of 80 is variable.

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