Facilitator 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 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:
| Facilitator Corp Analysis of Revenues and Costs For the Month Ended May 31 |
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| Planning Budget Unit Revenues and Costs | Actual Unit Revenues and Costs | Variances | |||||||
| Exchanges completed | 25 | 30 | |||||||
| Revenue | $ | 780 | $ | 730 | $ | 50 | U | ||
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| Expenses: | |||||||||
| Legal and search fees | 132 | 139 | 7 | U | |||||
| Office expenses | 167 | 129 | 38 | F | |||||
| Equipment depreciation | 15 | 12 | 3 | F | |||||
| Rent | 52 | 37 | 15 | F | |||||
| Insurance | 14 | 11 | 3 | F | |||||
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| Total expense | 380 | 328 | 52 | F | |||||
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| Net operating income | $ | 400 | $ | 402 | $ | 2 | F | ||
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Note that the revenues and costs in the above report are unit revenues and costs. For example, the average office expense is $167 per exchange completed on the planning budget; whereas, the average actual office expense is $129 per exchange completed. |
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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 $4,100. |
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All of the company%u2019s revenues come from fees collected when an exchange is completed. |
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| 1. | Whether report prepared by the bookkeeper is useful as a performance report? | ||||
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| 2. |
Complete a performance report that would help the owner/manager assess the performance of the company in May. (Input all amounts as positive values. Leave no cells blank be certain to enter “0” wherever required. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance). Omit the “$” sign in your response.) |
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Facilitator Corp |
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| Planning Budget | Activity Variances | Flexible Budget | Revenue and Spending Variances | Actual Results | |||
| Exchanges completed | |||||||
| Revenue | $ | $ | $ | $ | $ | ||
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| Expenses: | |||||||
| Legal and search fees | |||||||
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Office expenses |
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| Equipment depreciation | |||||||
| Rent | |||||||
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| Total expense | |||||||
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| Net operating income | $ | $ | $ | $ | $ | ||
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