Fougere Realtors, Inc._BUdgets

Fougere Realtors, Inc.

specializes in home re-sales. It earns revenue from selling fees. Fougere Realtors’ major costs are commissions for salespersons, listing agents, and listing companies. Its business has improved steadily over the last ten years. As usual, Chris Fougere, the managing partner of Fougere Realtors, Inc., received a report summarizing the performance for the most recent year.

 Fougere Realtors, Inc.

Performance Report

For the year ended December 31, 2007

 

                                                      Budget            Actual      Variance

 

Number of home re-sales                                            180                  202                 22 F

Variable expenses

Sales commissions                                           $1,102,950      $1,205,183      $102,233 U

Automobile                                                            36,000            39,560            3,560 U

Advertising                                                           171,000           192,690          21,690 U

General overhead                                                 656,100           716,970          60,870 U

Total                                                               $1,966,050      $2,154,403      $188,353 U

Fixed expenses

General overhead                                                   60,000            62,300            2,300 U

Total expenses                                                 $2,026,050      $2,216,703      $190,653 U

 

Required:

a) Explain the major weakness of this performance report and why all the variances for the variable expenses are unfavourable (U)  (5 marks)

b)     As a first step in helping Chris Fougere to evaluate cost / expense control in the organization, complete the following for the year ended December 31, 2007, assuming the only cost driver is the number of home re-sales. (Note: Indicate any variance as either favourable (F) or unfavourable (U).) (15 marks)

  

                                                                    Budget          Actual           Variance

 

Number of home re-sales                                     202                  202                          0

 Variable expenses 

Sales commissions           $                                        $ 1,205,183           _________

 

Automobile                       $                _________            39,560           _________

 

Advertising                       $                _________           192,690           _________

 

General overhead             $                _________           716,970           _________

  

Total                                 $                _________      $2,154,403           _________

 Fixed expenses 

General overhead             $                _________            62,300            _________

  

Total expenses                        $                                        $2,216,703