Assignment Problem: The Southern Division manager of Texcalibur, Inc. is growing concerned that the division will not be able to meet its current period income objectives. The division uses absorption costing for internal profit reporting and had an appropriate level of inventory at the beginning of the period. The division manager knows that he can boost profits by increasing production at the end of the period. Unfortunately, it is unlikely that the additional production will be sold, resulting in a larger ending inventory balance.
The division manager has come to Aston melon, the division controller, to determine exactly how much additional production is needed to increase income enough to meet the division's profit objectives. Aston analyzes the data and determines that the division will need to increase inventory by 30% in order to meet the division's income objectives. Aston reports this information to the division manager.
1. Why will increasing production near the end of the period increase profit?
2. Is Aston acting ethically?
3. What should Aston's response and/or actions be to this request?
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