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 Planning Budget
Unit Revenues Unit Revenues
and Costs 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 company’s revenues come from fees collected when an exchange is complete
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.)
Please write out the formula for how you get office expenses in each budget. Greatly Appreciated !!!