Fougere Realtors, Inc., specializes in home re-sales. It earns revenue from selling fees. Fougere Realtors' major costs are commissions for salespersons, listing agents, and listing companies. Its business has improved steadily over the last ten years. As usual, Chris Fougere, the managing partner of Fougere Realtors, Inc., received a report summarizing the performance for the most recent year.

Fougere Realtors, Inc.

Performance Report

For the year ended December 31, 2007

Budget

Actual

Variance

Number of home re-sales

180

202

22 F

Variable expenses

Sales commissions

$1,102,950

$1,205,183

$102,233 U

Automobile

36,000

39,560

3,560 U

Advertising

171,000

192,690

21,690 U

General overhead

656,100

716,970

60,870 U

Total

$1,966,050

$2,154,403

$188,353 U

Fixed expenses

General overhead

60,000

62,300

2,300 U

Total expenses

$2,026,050

$2,216,703

$190,653 U

Required:

a)Explain the major weakness of the performance report.

b)Explain clearly why all the variances for the variable expenses are unfavourable (U).

c)As a first step in helping Chris Fougere to evaluate cost/expense control in the organization, complete the following for the year ended December 31, 2007, assuming the only cost driver is the number of home re-sales. (Note: Indicate any variance as either favourable (F) or unfavourable (U). Note: My teacher specifies that it is normal that the below table is empty because we have to do a flexible budget here.

Budget

Actual

Variance

Variable expenses

Sales commissions

Automobile

Advertising

General overhead

Total

Fixed expenses

General overhead