4. a. Refer to the only patio set and has priced the necessary materials al has asked the president if he could purchase a patio set from the Dorilane Company at cost" and the president agreed to let him do so. Would you expect any disagreement between the two men over the price the brother. in-law should pay? Explain. What price does the president probably have in mind? The brother-in-law? Because the company is operating at full capacity, what cost term used in the chapter might be justification for the president to charge the full, regular price to the brother-in- law and still be selling "at cost"? b. CASE 1-27 Ethics and the Manager L01-3 M. K. Gallant is president of Kranbrack Corporation, a company whose stock is traded on a national exchange. In a meeting with investment analysts at the beginning of the year, Gallant had predicted that the company's earnings would grow by 20% this year. Unfortunately, sales have been less than expected for the year, and Gallant concluded within two weeks of the end of the fiscal year that it would be impossible to report an increase in earnings as large as predicted unless some drastic action was taken. Accordingly, Gallant has ordered that wherever possible, expendi- tures should be postponed to the new year-including canceling or postponing orders with suppli- ers, delaying planned maintenance and training, and cutting back on end-of-year advertising and travel. Additionally, Gallant ordered the company's controller to carefully scrutinize all costs that are currently classified as period costs and reclassify as many as possible as product costs. The company is expected to have substantial inventories at the end of the year. Required: 1 Why would reclassifying period costs as product costs increase this period's reported earnings? 2. Do you believe Gallant's actions are ethical? Why or why not