Question

nome re-sales. it earns revenue from selling fees. Fougere Realtors' major costs are commissions for salespersons, listing agents, and listing companies. Its business has g ' 'eart013, "' spec' alles . . improved steadily over the last ten years. As usual, Chris Fougere, the managing partner of Fougere Realtors, Inc., received a report summarizing the performance for the most recent year. Fougere Realtors, Inc. Performance Report For the year ended December 31,2007 Required: a) Explain the major weakness of this performance report and why all the Budget Actual Variance variances for the variable expenses are unfavourable (U) (5 marks) Number of home re-sales Variable expenses b) As a first step in helping Chris Fougere $102.233U to evaluate cost/ expense control in the Sales commissions Automobile Advertising General overhead Total $1.102.950 36,000 $1.205,183 39, 560 3,560 U 192.690 21.690 U y organization, complete the following 171.000 report for the year ended December 31, S1.966.050 $2.154.403 $188.33U 2007, assuming the only cost driver is the Fixed expenses 02300 t1 number of home re-sales. (Note: Indicate General overhead Total expenses $2.026.050 2.216,703 $190.63u any variance as either favourable (F) or unfavourable (U).) (15 marks) Actual Budget Variance Number of home re-sales Variable expenses Sales commissions Automobile Advertising General overhead Σ $1.205.183 _ 39,560 s. 192.690 Total $2.154.403 Fixed expenses Gencral overhead

Answer 1

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Part a
Major weekness of the said performance report is cost drivers.
Since no of home sold in budget and actual are not same, these two are not comparable.
All variable expenses variance are unfavorable because actual
no of home sold are more than budgeted.
Part b
		Budget		Actual	Variance
No of Home Re-sales		Working	202	202
Variable Expense
Sales Commission		1102950/180*202	$1,237,755	$1,205,183	$ 32,572	F
Automobile		36000/180*202	$     40,400	$     39,560	$       840	F
Advertising		171000/180*202	$   191,900	$   192,690	$       790	U
General Overhead		656100/180*202	$   736,290	$   716,970	$ 19,320	F
Total			$2,206,345	$2,154,403	$ 51,942	F
Fixed Expense
General Overhead		Fixed hence remain same at all sale level	$     60,000	$     62,300	$    2,300	U
Total Expense			$2,266,345	$2,216,703	$ 49,642	F