Problem 10-23 Critiquing a Report; Preparing a Performance Budget [L010-1, LO10-4, LO10-6] 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 Planning Budget Unit Actual Unit Revenues Revenues Exchanges completed Revenue and Costs and Costs Variances 25 750 30 $630 $ 120 UU Expenses Legal and search fees Office expenses Equipment depreciation Rent 281 142 25 75 15 538 $ 92 255 269 30 90 18 662 26 U 127 F 5 F 15 F 3 F 124 F $ 4 F Insurance Total expense Net operating income $ 88 Note that the revenues and costs in the above report are unit revenues and costs. For example, the average office expense is $269 per exchange completed on the planning budget, whereas, the average actual office expense is $142 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 $5,250 All of the company's revenues come from fees collected when an exchange is completed Required 1. Is the report prepared by the bookkeeper useful as a performance report? O Yes O 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.) Exchange Corp Flexible Budget Performance Report For the Month Ended May 31 Revenue and Spending Variances Flexible Budget Planning Budget Actual Results Activity Variances 30 Exchanges completed Revenue Expenses 25 Legal and search fees Office expenses Equipment depreciation Rent Insurance Total expense Net operating income