Problem 9-23 Critiquing a Report; Preparing a Performance Budget [LO9-1, 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:

Exchange Corp Analysis of Revenues and Costs For the Month Ended May 31
	Actual Unit Revenues and Costs			Planning Budget Unit Revenues and Costs			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			1	F
Total expense		344			360			16	F
Net operating income	$	41		$	35		$	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 companys revenues come from fees collected when an exchange is completed.

Required:

1.

Is the report prepared by the bookkeeper useful as a performance report?

	Yes
	No

2.	Complete a performance report that would help the owner/manager assess the performance of the company in May. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

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