=+The factory can normally produce up to 2000 units per month, but it is possible to increase production by 25% by leasing an extra machine at a cost of f2000 per month and working overtime, wh ich is paid at double the normal rate. The fixed production overheads include a depreciation charge on existing machinery. This machinery cost f240000 new, and is being depreciated on a straight-li ne basis over its expected 5-year life.

Finished goods stock is valued on an absorption cost basis, using the weighted average method. At the end of July 1988, finished stock was expected to amount to 2500 units valued at 05 300.

Raw material is paid for 1 month after delivery and sufficient is kept in stock to cover one month's budgeted production. The finished goods are sold on credit with 20% of debts being collected in the month of sale. 78% in the following month, and the remaining 2% being bad debts. All other costs are paid for in the month they are incurred, except for sales commission which is paid in the following month.

Expected unit sales for July 1988 and the following five months are:

July 1988 1100 August 1988 1500 September 1988 1800 October 1988 1900 November 1988 2000 December 1988 2500 The managing director realizes that substantial overtime may be needed in November 1988 to meet the December demand and is concerned that this may lead to hidden costs or other adverse effects on the business.

Required: