Gallardo is president of Quantym Corporation, a company whose stock is traded on a national exchange. In a meeting with investment analysts at the beginning of the year, Gallardo had predicted that the companys earnings would grow by 20% this year. Unfortunately, sales have been less than expected for the year, and Gallardo concluded with two weeks of the end of the fiscal year that it would impossible to ultimately report an increase in earning as large as predicted unless some drastic action was taken. Accordingly, Gallardo has ordered that wherever possible, expenditures should be postponed to the new year including canceling or postponing orders with suppliers, delaying planned maintenance and training, and cutting back on end-of-the-year advertising and travel. Additionally, Gallardo ordered the companys 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 of work in process and finished goods at the end of the year.

Why would reclassifying period costs as product costs increase this periods reported earnings? Do you believe Gallardos actions are ethical? Why or why not?