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Fougere Realtors: Explain major weakness in performance

Q3. 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


a) Explain the major weakness of this performance report.
b) Provided a detailed explanation as to why all the variances for the variable expenses are unfavourable (unfavorable) (U).

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Solution Summary

Your tutorial explains the weakness of the report and revises it to include a flexible budget.