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FDP Company produces a range of home security. Gary Price, the company’s president, is concerned with the fourth quarter market demand for company’s products. Unless something is completed in the last two months of the year, the company is likely to miss its earnings expectation of Wall Street analysts. Price still remembers when FDP’s earnings were beneath analyst’s expectation by two cents a share three years ago and the company’s share price fell 19 percent the day earnings were announced. In a recent meeting, Price told his top management that something should be done fast. One proposal by the market vice president was to give a deep discount to the company’s main customers to raise the company’s sales in the fourth quarter. The company controller pointed out that while the discount could increase sales, it might not help the bottom line; to the contrary, it could lower income. The controller said, “As we have adequate storage capacity, we might simply raise our production in the fourth quarter to raise our reported profit.”

problem 1: Interpret the data and make recommendations based on data in the Ethical Challenge.

problem 2: Gary Price is not sure how the increase in production devoid of a corresponding increase in sales could help boost the company's income. Describe to Price how reported income varies with respect to production level.

problem 3: Is there an ethical concern in this situation: if so, which parties are affected? Describe.

Cost Accounting, Accounting

  • Category:- Cost Accounting
  • Reference No.:- M91007

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