FDP Company produces a variety of home security products. GaryPrice, the company's president, is concerned with thefourth-quarter market demand for the company's products. Unlesssomething is done in the last two months of the year, the companyis likely to miss its earnings expectations of Wall Streetanalysts. Price still remembers when FDP's earnings were belowanalysts' expectations by two cents a share three years ago, andthe company's share price fell 19% the day earnings were announced.In a recent meeting, Price told his top management that somethingmust be done quickly. One proposal by the marketing vice presidentwas to give a deep discount to the company's major customers toincrease sales, it may not help the bottom line; to the contrary,it could lower income. The controller said, "Since we have enoughstorage capacity, we might simply increase our production in thefourth quarter to increase our reported profit."
- Gary Price is not sure how the increase in production without acorresponding increase in sales could help boost the company'sincome. Explain to Price how income carries with respect toproduction level.
- Is there an ethical concern in this situation? If so, whichparties are affected? Explain
