Question

Llama Realtors, Inc., earns it revenue from re-selling houses. Commissions for salespersons, listing agents and listing companies are their major expenses. As a result of the strong market over the past decade, business has been improving. As usual, Chris Llama, the managing partner of Llama Realtors, Inc., received a report summarizing the performance for the most recent year.

Llama Realtors, Inc.
Performance Report
For the year ended December 31, 2019

	Budget	Actual	Variance
Number of home re-sales	185	204	19 F
Variable expenses
Sales commissions	$1,102,600	$1,207,365	$104,765 U
Automobile	36,075	38,880	2,805 U
Advertising	170,940	193,460	22,520 U
General overhead	656,565	720,970	64,405 U
Total	$1,966,180	$2,160,675	$194,495 U
Fixed expenses
General overhead	60,000	64,380	4,380 U
Total expenses	$2,026,180	$2,225,055	$198,875 U

Required:

a) What are the major weakness of the performance report and explain what the problems are.
b) Explain clearly why all the variances for the variable expenses are unfavourable (U).
c) In order to help Chris Llama evaluate his cost/expense control in the organization, complete the following for the year ended December 31, 2019, assuming the only cost driver is the number of home re-sales. (Note: Indicate any variance as either favourable (F) or unfavourable (U).)

	Budget	Actual	Variance
Number of home re-sales	____	204	____
Variable expenses
Sales commissions	$_____	$1,207,365	$_____
Automobile	$_____	38,880	$_____
Advertising	$_____	193,460	$_____
General overhead	$_____	720,970	$_____
Total	$_____	$2,160,675	$_____
Fixed expenses
General overhead	$_____	62,300	$_____

Answer 1