FDP Company produces a variety of home security products. Gary Price, the companys president, is concerned with fourth quarter market demand for products. Unless something is done in the last two months of the year, the company is likely to miss its earnings expectations of Wall Street analysts. Price still remembers when FDPs earnings were below analyst expectations by two cents a share three years ago and the companys share price plunged 19% on the day earnings were announced. In a recent meeting, Price told his top management team that something must be done quickly. One proposal by the companys marketing vice president was to give deep discounts to the companys major customers to increase fourth quarter sales. The company controller pointed out that while that may increase sales, it likely would not help the bottom line; to the contrary, it might even make the numbers worse. Since they have enough storage capacity, the controller suggested that they increase production to increase reported profit.

1. Price is not sure how the increase in production without increased sales could help boost the companys income. Explain to Price how reported income varies with respect to production levels.
2. Is there an ethical concern in this situation? If so, which parties would be affected?