Question

Niagra Chemical Company produces three products using three different continuous processes. The products are Yarex, Darol, and Norex. Projected sales in gallons for the three products for the years 20x2 and 20x3 are as follows:


Because of the continuous nature of Niagra’s processes, work- in- process inventory for each of the products remains constant throughout the year.
Inventories are planned for each product so that the projected finished- goods inventory at the beginning of each year is equal to 8 percent of that year’s projected sales.
The conversion requirements in hours per gallon for the three products are Yarex, .07 hours; Darol, .10 hours; and Norex, .16 hours. The conversion cost of $ 20 per hour is considered 100 percent variable.
The raw-material requirements of the three products are shown in the following chart.


Raw-material inventories are planned so that each raw material’s projected inventory at the beginning of a year is equal to 10 percent of the previous year’s usage of that raw material.

Required:
1. Determine Niagra Chemical Company’s production budget (in gallons) for the three products for 20x2.
2. Determine Niagra Chemical Company’s conversion cost budget for 20x2.
3. Assuming the 20x1 usage of Islin is 200,000 gallons, determine the company’s raw- material purchases budget (in dollars) for Islin for 20x2.
4. Assume that for 20x2 production Niagra Chemical Company could replace the raw material Islin with the raw material Philin. The usage of Philin would be the same as the usage of Islin. However, Philin would cost 20 percent more than Islin and would cut production times on all three products by 10 percent. Determine whether management should use Philin or Islin for the 20x2 production, supporting your decision with appropriate calculations. For this requirement, ignore any impact of beginning and ending inventory balances.
(CMA,adapted)


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  • CreatedApril 22, 2014
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