Southeast Manufacturing produces a subassembly used in the production of jet aircraft engines. The assembly is sold to engine manufacturers and aircraft maintenance facilities. Projected sales in units for the coming five months are below:

January 40,000

February 50,000

March 57,000

April 62,000

May 60,000

The following data pertain to production policies and manufacturing specifications followed by Southeast Manufacturing:

1. The unit selling price of the subassembly is $206.

2. The data on materials used are as follows:

Direct Materials Per-Unit Usage Unit Cost ($)

Metal 10 lbs $8

Components 5 $7

Inventory policy dictates that sufficient materials be on hand at the end of the month to produce 50% on the next month's production needs. This is exactly the amount of material on hand on December 31 of the prior year.

3. The direct labor used per unit of output is three hours. The average direct labor cost per hour is $14.10.

4. Overhead each month is estimated using a flexible budget formula. Activity is measured in direct labor hours

Fixed-Cost Component ($) Variable-Cost Component ($)

Supplies - 1.00

Power - 0.50

Maintenance 30,000 0.40

Supervision 16,000 -

Depreciation 200,000 -

Taxes 12,000 -

Other 80,000 0.60

5. Monthly selling and administrative expenses are also estimated using a flexible budgeting formula. Activity is measured in units sold.

Fixed Costs ($) Variable Costs ($)

Salaries 50,000 -

Commissions - 2.00

Depreciation 40,000 -

Shipping - 1.00

Other 30,000 0.60

6. Finished goods inventory on January 1 is 32,000 units, each costing $170.96. The desired ending inventory for each month is 80% of the next month's sales.

7. All sales and purchases are for cash. The cash balance on January 1 equals $400,000. The firm requires a minimum ending balance of $50,000. If the firm develops a cash shortage by the end of the month, sufficient cash is borrowed to cover the shortage. Any cash borrowed is repaid at the end of the month, as is the interest due (cash borrowed at the end of the month is repaid at the end of the following month). The interest rate is 12% per annum. No money is owed at the beginning of January.