924 Critiquing a Report Preparing a Performance Budget LO91

9-24 Critiquing a Report; Preparing a Performance Budget [LO9-1, Lo9-2, LO9-3, 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 For the Month Ended May 31 Planning Actual nit Unit Revenues Costs 25 Legal and search fees office expenses 227 21e 17 U 215 242 27 F 15F 15 18 590 Total expense Net operating income $ 13 $70 $57 U Note that the revenues and costs in the above report are unit revenues and costs. For example, the average office expense is $242 per exchange completed on the planning budget, whereas, the average actual office expense is $215 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 $4,800 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 ownet/manager assess the performance of the company in May.

Solution

Particulars Actual Revenue and spending variance Flexible budget Activity variance Static budget Units 30 30 25 Revenue 17100 2700 U 19800 3300 F 16500 Expenses Legal and search fees 6810 510 U 6300 1050 U 5250 Office expense 6450 150 U 6300 250 U 6050 Equipment depreciation 750 0 750 0 750 Rent 2250 0 2250 0 2250 Insurance 450 0 450 0 450 Total expense 16710 990 F 17700 2950 U 14750 Net operating income 390 1710 U 2100 350 F 1750