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 the 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 Planning Budget Unit Variances

Exchanges completed 50 40

Revenue $385 $395 $10 U

Expenses:

Legal and search fees 184 165 19 U

Office expenses 112 135 23 F

Equipment depreciation 8 10 2 F

Rent 36 45 9 F

Insurance 4 5 1F

Total expense 344 360 16F

Net operating income $ 41 $ 35 $ 6F

Note that the revenues and costs in the above report areunitrevenues 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 the performance report (flexible budget 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.