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:

20x2 20x3

Yarex 120,000 130,000

Darol 80,000 70,000

Norex 50,000 60,000

Because of the continuous nature of Niagras 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 years projected sales.

The conversion requirements in hours per gallon for the three products are Yarex, 0.07 hours; Darol, 0.10 hours; and Norex, 0.16 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 Units Unit Price Yarex Darol Norex

Gamma pounds $ 8 0.2 0.4

Murad pounds $ 6 0.4 0.5

Islin gallons $ 5 1.0 0.7 0.5

Tarden gallons $ 10 0.3 0.5

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

Required:

1. Determine Niagra Chemical Companys production budget (in gallons) for the three products for 20x2.

2. Determine Niagra Chemical Companys conversion cost budget for 20x2.

3. Assuming the 20x1 usage of Islin is 200,000 gallons, determine the companys raw-material purchases budget (in dollars) for Islin for 20x2.

4-a. 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. Compare cost of using Philin over using Islin.

4-b. Which raw material should the management use for the 20x2 production? Islin Philin