IslandTech Innovations Inc. is a leading manufacturer of ecofriendly outdoor equipment based on
Vancouver Island. The company is known for its highquality camping gear and outdoor apparel,
which are made using sustainable materials and practices. IslandTech's commitment to
environmental conservation has earned it a strong customer base among outdoor enthusiasts.
As IslandTech Innovations Inc. prepares its financial statements for the fiscal year, management
faces decisions that could impact the company's reported financial position and performance.
These decisions revolve around the classification of inventory costs and the valuation of accounts
receivable, both of which are crucial for the company's financial health and its ability to meet bank
loan covenants that require maintaining a specific current ratio.
The company has recently launched a new line of ecofriendly, insulated sleeping bags. The
production of these sleeping bags involves higher costs due to the use of organic materials and fairwage labor practices. Management is considering the reclassification of certain direct labor and
overhead costs from product costs to period expenses, which could affect the cost of goods sold
COGS and, consequently, the company's gross profit margin.
IslandTech offers credit terms to its wholesale clients. Recently, there has been a slight increase in
the average collection period for receivables. Management is contemplating adjusting the
percentage of accounts deemed uncollectable, which would impact the allowance for doubtful
accounts and the net realizable value of the company's accounts receivable.
What should IslandTechs management do
