Brumptax is a company that acts as a facilitator in tax-favored real estate swap

Question

Brumptax 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 Brumptax Corp Analysis of Revenues and Costs For the Month Ended May 31 Planning Budget Unit Revenues and Costs Actual Unit Revenues and Costs Variances Exchanges 25 20 completed Revenue 590 630 40 U Expenses Legal and 14 U 209 195 search fees Office expenses 196 233 37 F Equipment depreciation 24 30 6 F Rent 75 15 F Insurance 12 15 3 F Total expense 501 548 47 F Net operating income 7 F Note that the revenues and costs in the above report are unit revenues and costs. For example, the average office expense is $233 per exchange completed on the planning budget, whereas, the average actual office expense is $196 per exchange completed. Legal and search fees is a variable cost; office expenses is a mixed cost; and equipment depreciation, rent, and insurance are foxed costs. In the planning budget, the fixed component of office expenses was $4,500. All of the company's revenues come from fees collected when an exchange is completed Required Prepare a Flexible Budget Performance Report-which includes the revenue, spending and activity variances.

Explanation / Answer

Actual Revenue and spending variances Flexible budget Activity variances Planning budget Revenue 14750 1000 U 15750 3150 F 12600 Expenses: Legal and search fees 5225 350 U 4875 975 U 3900 office expenses 4900 200 U 4700 40 U 4660 Equipment depreciation 600 0 None 600 0 None 600 Rent 1500 0 None 1500 0 None 1500 Insurance 300 0 None 300 0 None 300 Total expenses 12525 550 U 11975 1015 U 10960 Net operating income 2225 1550 U 3775 2135 F 1640

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