CTEA 2217:

MANAGEMENT ACCOUNTING II
TUTORIAL SESSION: WEDNESDAY (122PM)
LECTURER
: DR KAMISAH BINTI
ISMAIL
NAME : NUR ALYA BINTI MOHAMAD
YUSOF
MATRIX ID : CEA 140097

Problem 9.33

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

Inventories are planned for each product so that the

projected finished goods inventory at the beginning of each
year is equal to 8% of that years projected sales.

 The conversion requirements in hours per gallon for the three products
are Yarex, 0.7 hours; Darol, 0.10 hours; and Norex, 0.16 hours, the
conversion cost of $20 per hours is considered 100% variable.
The raw material requirements of the three products are shown in the
following chart.

Raw materials inventories are planned so that each raw materials

projected inventory at the beginning of a year is equal to 10% of the
previous years usage of that raw material.

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

Solution for Requirement 1

Niagra Chemical Companys Production Budget for 20x2
Yarex

Darol

Norex

Annual

Sales in unit

120,000

80,000

50,000

250,000

Add: Ending
inventory*
(0.08 x 20x3
sales)

10,400

5,600

4,800

20,800

130,400

85,600

54,800

270,800

9,600

6,400

4,000

20,000

120,800

79,200

50,800

250,800

Total inventory
needed
Less: Beginning
inventory**
(0.08 x 20x2
sales)
Required
production
(gallons)

Notes: The projected finished goods inventory at the beginning of

each year is equal to 8% of that years projected sales.

Calculation of ending inventory*

Calculation (0.08 x 20x3
sales)

Total (gallons)

Yarex

0.08 x 130,000

10,400

Darol

0.08 x 70,000

5,600

Norex

0.08 x 60,000

4,800

Calculation of beginning inventory**

Calculation (0.08 x 20x2
sales)

Total (gallons)

Yarex

0.08 x 120,000

9,600

Darol

0.08 x 80,000

6,400

Norex

0.08 x 50,000

4,000

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

Solution for Requirement 2

Niagra Chemical Companys Conversion Cost Budget for 20x2
Yarex
Conversion
hours per
gallon
Conversion
cost per hour
Conversion
cost per gallon
Required
production
Total
conversion cost

Darol

Norex

0.07

0.10

0.16

$20

$20

$20

$1.4

$2

$3.20

120,800

79,200

50,800

$169,120

$158,400

$162,560

Annual

$490,080

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

Solution for Requirement 3

Production in gallon
Islin needed per gallon
Quantity of Islin
required
Add: Ending inventory
(0.10 x 201,640)
Subtotal
Less: Beginning
inventory (0.10 x
200,000)
Required Islin to be
purchased (gallons)
Islin per gallon

Yarex

Darol

Norex

120,800

79,200

50,800

1.0

07

0.5

120,800

55,440

25,400

Annual

201,640
20,164
221,804
20,000

201,804
$5

Total Islin to be
$1,009,020
Notes:
Raw materials inventories are planned so that each raw materials
purchased
projected inventory at the beginning of a year is equal to 10% of the

Requirement 4
Assume that 20x2production, 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% more than Islin and would cut
production times on all three products by 10%.
Determine whether management should use
Philin or Islin for the 20x2 production, supporting
your decision with appropriate calculations. For
the requirement, ignore any impact of beginning
and ending inventory balances.

Solution for Requirement 4

$
20x2 cost of raw material:
Philin (201,640 x $5 x
120%)
Islin (201,640 x $5)

1,209,840
1,008,200

Change in cost of material

20x2 cost of conversion:
Philin (24,504* x $20 x
0.9)
Islin (24,504* x $20)
Change in conversion cost
Net increase in production
cost Niagra Chemical
Thus,

Total ($)

201,640
441,072
490,080
(49,008)
152,632

Company should continue

using Islin, as the cost of using Philin is $152,632
greater than using Islin.

Conversion hours required:

Yarex (120,800 x 0.07)

8,456

Darol (79,200 x 0.10)

7,920

Norex (50,800 x 0.16)

8,128

Total conversion hours

24,504*

Reference
1. Hilton, R.W., & Platt, D.E. (2014).
Managerial Accounting. 10th ed.
McGraw-Hill.

Thank You