Production and Materials BudgetsEmpire Chemical Company produces three products using thre...

Production and Materials Budgets

Empire 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:

• 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.

• Because of the continuous nature of Empire’s processes, work-in-process inventory for each of the products remains constant throughout the year.

• The raw-material requirements of the three products are shown in the following chart.

• Raw-material inventories arc 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 or that raw material.

The conversion requirements in hours per gallon for the three product, are Yarex, .07 hour; Darol, 10 hour: and Norex. .16 hour. The conversion cost of $20 per hour is considered 100 percent variable

Required:

1. Determine Empire Chemical Company’s production budget (in gallons) for the three product for 20x2.

2. Determine Empire Chemical Company’s conversion cost budget for 20x2.

3. Assuming the 20xl usage of Islin is 100.000 gallons, determine the company’s raw-material purchases budget (in dollars) for Islin for 20x2.

4. Assume that for 20x2 production, Empire 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 10percent. Determine whether management should use Philin or lslin for the 20x2 production. supporting your decision with appropriate calculations. For this requirement, ignore any impact of beginning and ending inventory balances.