Benoit Chemical Company (BCC) produces a variety of specialty chemicals used in the pharmaceutical industry and construction industry. BCC spends almost 20% of its net revenues on research, product development, and customer development to achieve its reputation as a high-quality producer of chemicals, a reliable supplier, and a great provider of customer service. BCC has a small number of large customers, each of which typically has one or more large orders being processed at BCC at any given point in time. These orders are typically completed over one to three months or longer. BCC uses job costing to keep track of total job costs over the duration of each order and process costing to keep track of monthly costs, department by department. The processing departments include mixing, reacting (in which chemicals are heated and sometimes vacuum is applied), cleaning, inspecting, packaging, and distribution. Much of the total product cost is accumulated in the first two processes, mixing and reacting. The following information is for activity and costs in the first two departments during the current month.

The mixing department started 74,000 gallons this month. No spoilage is measured in the mixing department, but a careful measure of the loss of material in reacting is taken after the completion of the reacting process. No materials are added in the reacting process. The number of gallons lost (spoilage) is considered normal spoilage and is considered to have lost the full cost of processing up to that point of inspection. BCC uses the weighted-average method for process costing.

Work-in-process for the two departments is as follows. Percentage completion for conversion costs is 60% in the mixing department for both beginning and ending inventory. The percentage completion for conversion costs for the reacting department for beginning and ending inventory is 30% and 40%, respectively.

Costs in the mixing department:

Transferred-in beginning work-in-process costs are $242,150 and conversion costs in the reacting department are as follows:
Conversion
Beginning work-in-process......................412510
Current costs...................................1245320
.................................................$1657830
Required
1. Prepare the production cost report for the mixing department.
2. Prepare the production cost report for the reacting department.
3. What comments and observations do you have about the two departments' cost reports?
4. What is Benoit's competitive strategy, based on Michael Porter's framework? Explain whether or not you think the company's costing system supports this strategy.

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Beginning work-in-process units Ending work-in-process units Normal spoilage (lost gallons) Mixing Department (gallons) 28,000 26,000 Reacting Department gallons) 16,500 18,250 2,250 Beginning work-in-process Current costs Materials $56,480 288,500 Conversion $282,400 989,400