Question
Llama Realtors, Inc., earns it revenue from re-selling houses. Commissions for salespersons, listing agents and listing companies are their major expenses. As a result of
Llama Realtors, Inc., earns it revenue from re-selling houses. Commissions for salespersons, listing agents and listing companies are their major expenses. As a result of the strong market over the past decade, business has been improving. As usual, Chris Llama, the managing partner of Llama Realtors, Inc., received a report summarizing the performance for the most recent year. Llama Realtors, Inc. Performance Report For the year ended December 31, 2019
Budget | Actual | Variance | |
Number of home re-sales | 185 | 204 | 19 F |
Variable expenses | |||
Sales commissions | $1,102,600 | $1,207,365 | $104,765 U |
Automobile | 36,075 | 38,880 | 2,805 U |
Advertising | 170,940 | 193,460 | 22,520 U |
General overhead | 656,565 | 720,970 | 64,405 U |
Total | $1,966,180 | $2,160,675 | $194,495 U |
Fixed expenses | |||
General overhead | 60,000 | 64,380 | 4,380 U |
Total expenses | $2,026,180 | $2,225,055 | $198,875 U |
Required: a) What are the major weakness of the performance report and explain what the problems are. b) Explain clearly why all the variances for the variable expenses are unfavourable (U). c) In order to help Chris Llama evaluate his cost/expense control in the organization, complete the following for the year ended December 31, 2019, assuming the only cost driver is the number of home re-sales. (Note: Indicate any variance as either favourable (F) or unfavourable (U).)
Budget | Actual | Variance | |
Number of home re-sales | ____ | 204 | ____ |
Variable expenses | |||
Sales commissions | $_____ | $1,207,365 | $_____ |
Automobile | $_____ | 38,880 | $_____ |
Advertising | $_____ | 193,460 | $_____ |
General overhead | $_____ | 720,970 | $_____ |
Total | $_____ | $2,160,675 | $_____ |
Fixed expenses | |||
General overhead | $_____ | 62,300 | $_____ |
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