Question

ect.mheducation.com/flow/connect.html?returnUrl=https%3A%2F%2Fconnect.mheduca Oblem 9-24 i participants to avoid some or all of the capital gains taxes that would otherwi asked to prepare a report for the company to help its owner/manager analyz Exchange Corp- Analysis of Revenues and Costs For the Month Ended May 31 Planning Budget Unit Actual Unit Revenues and Cost B0 Revenues pue Variances Costs 25 Exchanges completed S720 $620 Expenses: gal and search fees Office expenses AUPment depreciation Rent asurence Totel expense P68 23 U 240 260 227 25 75 94 15 F 13 F 15 538 BB tet loperetihg Income $82 Note that therevendes and costs n the above eport are untrevenues anG c Der exchangt completec onthe panhing buicgetwhereas, the average aOtue ege and search ees is e varable cost office expenses is e mixealcostic c sosts e panhing Cucoet che fixec compenent of office experseswas AGe cepanvseke nues ccmefim ees dele ash.ahiercharg Required
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 Costs Planning Budget Unit Revenues and Costs Variances Exchanges completed 30 25 Revenue $ 620 $ 720 $ 100 U Expenses: Legal and search fees 263 240 23 U Office expenses 227 260 33 F Equipment depreciation 25 30 5 F Rent 75 90 15 F Insurance 15 18 3 F Total expense 605 638 33 F Net operating income $ 15 $ 82 $ 67 U Note that the revenues and costs in the above report are unit revenues and costs. For example, the average office expense is $260 per exchange completed on the planning budget; whereas, the average actual office expense is $227 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 $5,100. 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.

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	18600	3000	U	21600	3600	F	18000
Expenses:
Legal and search fees	7890	690	U	7200	1200	U	6000
Office expenses	6810	30	U	6780	280	U	6500
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	18150	720	U	17430	1480	U	15950
Net operating income	450	3720	U	4170	2120	F	2050
Office expenses:
Variable component = (6500-5100)/25 = $56
Office expenses in flexible budget = 5100+(30*56) = $6780