GMT 1600 Case 1 Emma Nguyen, is the Controller for Jaxon Unlimited Inc, a manufacturer of office equipment. At the beginning of the year, Nguyen budgeted that the company's net earnings would grow by approximately 20% during the current fiscal year. Unfortunately, now in preparation for an upcoming annual shareholder meeting, Nguyen is projecting that due to the continue delays in the supply chain and impacts of inflation, sales will be significantly less than expected for the year and that the company will not meet its earnings projections. Therefore, Nguyen has requested that James Jordan, the production manager, should rollback inventory levels and implement spending freezes for the remainder of the year. In addition, Nguyen has asked you, her accounting manager, to carefully scrutinize any costs that are currently classified as period costs to reclassify as much as possible to product costs, including shifting allocated costs to a higher percentage being allocated to the manufacturing process and facilities. Despite the rollback, the company is expected to have substantial inventories on hand at year-end. As the accounting manager, prepare a two-page report (double spaced) to the CFO, responding to the following questions: 1) Explain the difference in the accounting treatment and flow of costs for product costs and period costs? 2) Discuss why reclassifying or shifting period costs to product costs increase the fiscal year's net earnings? Describe, if any, the impact this would this have on the inventory costs on the balance sheet 3) Recommend at least 5 specific expenses that could legitimately either be eliminated, reduced, or reclassified to product costs or increase other revenue streams. Be creative but fully explain your decisions and their impact to the balance sheet and income statement. For example, (a freebie if you decide to use), based on the reduction in sales, the company could sublease some of the warehouse to increase revenues and profitability by maximizing the usage of unused space. 4) Do you believe Nguyen's actions are ethical, in particular to the shift in product and period costs? Using the fact pattern described above, provide detailed reasoning for your position. What would you do if Nguyen does not agree with your recommendations?

GRADUATE STUDENTS - you must also provide a brief response to the following: Describe the importance of cost behavior patterns in planning, control, and decision making, such as the relevancy of differentiating between fixed and variable costs in these matters.