Question

Problem 9-23 Critiquing a Report; Preparing a Performance Budget [LO9-1, LO9-4, LO9-6] 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 Budget Actual Unit Unit Revenues Revenues and Costs and Costs Exchanges completed 30 Revenue $ 610 $ 690 Variances 25 $80 U 245 165 25 TIS Expenses: Legal and search fees Office expenses Equipment depreciation Rent Insurance 86 F 225 251 30 90 18 ד ד 15 ד Total expense 525 614 89 F Net operating income $ 85 $ 76 $ 9 F

Answer 1

1
NO, the report prepared by bookkeeper is not a useful performance report
2
	Actual results	Revenue and spending variances		Flexible budget	Activity variances		Planning budget
Exchanges completed	30			30			25
Revenue	18300	2400	U	20700	3450	F	17250
Expenses:
Legal and search fees	7350	600	U	6750	1125	U	5625
Office expenses	4950	1590	F	6540	265	U	6275
Equipment Depreciation	750	0	None	750	0	None	750
Rent	2250	0	None	2250	0	None	2250
Insurance	450	0	None	450	0	None	450
Total expense	15750	990	F	16740	1390	U	15350
Net operating income	2550	1410	U	3960	2060	F	1900
Office expenses:
Variable component = (6275-4950)/25 = $53
Office expenses in flexible budget = 4950+(30*53) = $6540