Description
FDP Company produces a variety of home security products. Gary Price, the company's president, is concerned with the fourth-quarter market demand for the company's products. Unless something is done in the last two months of the year, the company is likely to miss its earnings expectations of Wall Street analysts. Price still remembers when FDP's earnings were below analysts' expectations by two cents a share three years ago, and the company's share price fell 19% the day earnings were announced. In a recent meeting, Price told his top management that something must be done quickly. One proposal by the marketing vice president was to give a deep discount to the company's major customers to increase sales, it may not help the bottom line; to the contrary, it could lower income. The controller said, "Since we have enough storage capacity, we might simply increase our production in the fourth quarter to increase our reported profit."
Discussion points:
- Gary Price is not sure how the increase in production without a corresponding increase in sales could help boost the company's income. Explain to Price how income carries with respect to production level.
- Is there an ethical concern in this situation? If so, which parties are affected? Explain.
Explanation & Answer
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1
Income to Production Level
Student’s Name
Department, Institution affiliation
Course Number: Course Name
Professor’s Name
July 30, 2020
2
Income to Production Level
The net income of operation can be increased by only increasing the units without
necessarily selling the units. It is different from Price Gary’s idea of variable costing income,
which only impacts the net income when there is an increase in sales. The absorption costing
revenue is aff...
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