Product Costs versus Period Costs

A.K. Brooks is president of Brooks Inc., a company whose is traded on a national exchange. The company produces and sells modular furniture. In a meeting with investment analysts at the beginning of the year, Brooks had predicted that the companys earnings would grow by 20% this year. Unfortunately, sales have been less then expected for the year, and Brooks 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, Brooks has ordered that wherever possible, expenditures should be postponed tot the new year--- including canceling or postponing orders with suppliers, delaying planned maintenance and training, and cutting back on end-of-year advertising and travel. Additionally, Brooks ordered the companys comptroller to carefully scrutinize all costs that are currently classified as period costs and reclassify as many as possible as product costs. The company expects to have substantial inventories at the end of the year.

Required: Write a short (no more than 2 pages, double-spaced) that answers the following:

1. What is product costs for a manufacturing company? Give an example of each major type of product cost for our furniture company.
2. What is period costs? Give three (3) examples of period costs for our company.
3. Why would reclassifying period costs as product costs increase this periods reported earnings. Be specific in your explanation.
4. Are Brooks actions to postpone expenditures ethical? Why or why not?
5. Are Brooks actions to reclassify period costs to product costs ethical? Why or why not?