Pandosy Company reported the following sales and factory overhead variances for fiscal 2010, a year in which sales and production in units were both 18 percent greater than expected. The company uses standard costing and allocates factory overhead on the basis of direct-labour-hours. 

Sales-volume variance.............................$87,000 F 

Variable overhead efficiency variance....23,500 U 

Overapplied variable overhead................41,750 F 

Fixed overhead volume variance..............50,356 F 

Underapplied fixed overhead....................1,500 U

You have recently been hired as Pandosy’s controller, with a mandate to improve the company’s variance reporting, especially regarding factory overhead. Write a memorandum explaining the firm’s control of variable and fixed overhead costs in 2010. Include a discussion of the economic impact of exceeding predicted production and sales by 18 percent. Suggest improvements to Pandosy’s variance reporting system.