CASE 1-27 Ethics and the Manager LO1-3 M. K. Gallant is president of Kranbrack Corporation, 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 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 company is expected to have substantial inventories at the end of the year a company whose stock is traded on a as many as possible as product costs.

The Required: 1. Why would reclassifying period costs as product costs increase this peried's reported earnings?