Question

Planning Budget Actual Unit Unit Revenues Revenues and Costs and Costs 25 20 $ 570 $ 610 Variances Exchanges completed Revenue $40 U 12 U 197 190 Expenses: Legal and search fees Office expenses Equipment depreciation Rent Insurance ד ד 24 185 227 30 75 15 ד ד Total expense 532 ד 49 $ 9F Net operating income $ 87 $ 78 Note that the revenues and costs in the above report are unit revenues and costs. For example, the average office expense is $227 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 $4,400. 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? Yes Ο Νο 2. Complete a 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.) Exchange Corp Flexible Budget Performance Report For the Month Ended May 31 Revenue and Spending Flexible Variances Budget Actual Results Activity Variances Planning Budget 20 25 Exchanges completed Revenue Expenses: Legal and search fees Office expenses Equipment depreciation Rent Insurance Total expense Net operating income

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:

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	25			25			20
Revenue	14250	1000	U	15250	3050	F	12200
Expenses:
Legal and search fees	4925	300	U	4625	925	U	3700
Office expenses	4750	175	U	4575	35	U	4540
Equipment Depreciation	600	0	None	600	0	None	600
Rent	1500	0	None	1500	0	None	1500
Insurance	300	0	None	300	0	None	300
Total expense	12075	475	U	11600	960	U	10640
Net operating income	2175	1475	U	3650	2090	F	1560
Office expenses:
Variable component = (4540-4400)/20 = $7
Office expenses in flexible budget = 4400+(25*7) = $4575