Ethics of Product Pricing. Vine Resources (VR) provides office equipment systems development and maintenance services. Its customers are in a wide array of businesses. Maintenance services are provided on an annual contract with a fixed annual fee or with a fixed per hour rate, on a one-time as needed basis, or as defined in a contract with the customer. VR won a competitive bid with the City of Dermit to maintain a large number of office work stations. The contract is for three years and calls for routine maintenance checks to be done quarterly as part of the annual fee, emergency calls to be billed at the "full" cost per hour of service representatives, and parts to be replaced for free except for major hardware components. This rate will be updated annually.

It is now a year and a half into the contract. The city controller is concerned with the growing cost of machine maintenance. After examining the situation, the controller has found:

1. Emergency calls have doubled in the past six months and are growing.

2. The "full" cost service rate has gone from \(\$ 15\) per hour last year to \(\$ 20\) per hour this year.

3. Office workers are complaining about too much downtime.

A meeting with the VR representative found that all routine maintenance has been performed on schedule. Also, while some personnel costs have increased, the main reason for the jump in service rate was a change made in how certain fringe benefit costs were assigned to service personnel. The VR representative also mentioned the aging nature of the equipment and the need to upgrade the entire system.

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Comment on possible implications of the controller's findings and the VR representative's explanations.