Problem:
(Critiquing a Report; Preparing a Performance Budget) of the e-book and discuss the first question.
Exchange Corp. is a company that acts as a facilitator in tax-favored real estate swaps. Such swaps, known 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 & Costs Variances
And Costs
Exchanges completed 40 50
Revenue $395 $385 $10 U
Expenses:
Legal and Search fees 165 184 19 U
Offfice expenses 135 112 23 F
Equipment depreciation 10 8 2 F
Rent 45 36 9 F
Insurance 5 4 1 F
Total Expense 360 344 16 F
Net operating income $35 $41 $6 F
Note that the revenues and costs in the above report are unit revenues and costs. For example, the average office expense is $135 per exchange completed on the planning budget; whereas, the average actual office expense is $112 per exchange completed. Legal and search fees in 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 $5,200. All of the company's revenues come from fees collected when an exchange is completed.
1. Evaluate the report prepared by the bookkeeper.
2. Prepare a performance report that would help the owner/manager assess the performance of the company in May.
3. Using the report you created, evaluate the performance of the company in May.