Exchange Corp. is acompany that acts as a facilitator in tax-favored real estateswaps. Such swaps, know as 1031 exchanges, permit participants toavoid some or all of the capital gains taxes that would otherwisebe due. The bookkeeper for the company has been asked to prepare areport for the company to help its owner/manager analyzeperformance. 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 |
| Exchangescompleted | | 30 | | | 25 | | | | |
| Revenue | $ | 635 | | $ | 710 | | $ | 75 | U |
| Expenses: | | | | | | | | | |
| Legal and searchfees | | 257 | | | 235 | | | 22 | U |
| Officeexpenses | | 135 | | | 257 | | | 122 | F |
| Equipmentdepreciation | | 25 | | | 30 | | | 5 | F |
| Rent | | 75 | | | 90 | | | 15 | F |
| Insurance | | 15 | | | 18 | | | 3 | F |
| Totalexpense | | 507 | | | 630 | | | 123 | F |
| Net operatingincome | $ | 128 | | $ | 80 | | $ | 48 | F |
|
Note that the revenuesand costs in the above report are unit revenues and costs.For example, the average office expense is $257 per exchangecompleted on the planning budget; whereas, the average actualoffice expense is $135 per exchange completed.
Legal and search feesis a variable cost; office expenses is a mixed cost; and equipmentdepreciation, rent, and insurance are fixed costs. In the planningbudget, the fixed component of office expenses was $5,050.
All of the company’srevenues come from fees collected when an exchange iscompleted.
Required:
1. Is the reportprepared by the bookkeeper useful as a performance report?
2. Complete aperformance report that would help the owner/manager assess theperformance of the company in May. (Indicate the effect ofeach variance by selecting "F" for favorable, "U" for unfavorable,and "None" for no effect (i.e., zero variance). Input all amountsas positive values.)
