Exchange Corp. is a company that acts as a facilitator in tax-favored real estate swaps. Such swaps, knownas 1031 exchanges, permit participants to avoid some or all of the capital gains taxes that would otherwisebe due. The bookkeeper for the company has been asked to prepare a report for the company to help itsowner/manager analyze performance. The first such report appears below:Exchange Corp.Analysis of Revenues and CostsFor the Month Ended May 31Planning Budget ActualUnit Revenues Unit Revenuesand Costs and Costs VariancesExchanges completed ............ 40 50Revenue .................................. $395 $385 $10 UExpenses:Legal and search fees .......... 165 184 19 UOffice expenses ................... 135 112 23 FEquipment depreciation ....... 10 8 2 FRent ..................................... 45 36 9 FInsurance ............................. 5 4 1 FTotal expense .......................... 360 344 16 FNet operating income .............. $ 35 $ 41 $ 6 FNote that the revenues and costs in the above report are unit revenues and costs. For example, the averageoffice expense is $135 per exchange completed on the planning budget; whereas, the average actual officeexpense is $112 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$5,200.All of the company’s revenues come from fees collected when an exchange is completed.Required:1. Evaluate the report prepared by the bookkeeper.2. Prepare a performance report that would help the owner/manager assess the performance of thecompany in May.3. Using the report you created, evaluate the performance of the company in May.
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
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 Revenues Unit Revenues
and Costs and Costs Variances
Exchanges completed ............ 40 50
Revenue .................................. $395 $385 $10 U
Expenses:
Legal and search fees .......... 165 184 19 U
Office expenses ................... 135 112 23 F
Equipment
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 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
$5,200.
All of the company’s revenues come from fees collected when an exchange is completed.
Required:
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.
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