$5.$ Smoothit Inc is facing a problem with their $4$th quarter earnings on December $25.$ Their

earnings target is $$2,500,000$ and the data so far is as follows:

Sales Revenue $$25,000,000($$$500/$unit$)$

Variable COGS $$10,000,000($$$200/$unit$)$

Fixed OH $$10,000,000$

Fixed S&A $ $2,000,000$

Variable S&A $5\%$ Commission on Sales

Smoothit has had a policy of having zero inventories at the end of each quarter. No further sales

are possible during the year and all the units produced so far have been sold. The CEO is

planning to cut the sales commission to meet the earnings target, but the accountant, Mr$.$ Shady

Helper, plans on suggesting producing items for inventory.

$5\mathrm{.}1$ How much will the sales commissions have to be cut in order to meet the earnings target?

$5\mathrm{.}2$ How many items need to be produced for inventory to meet the earnings target if the sales

commission is left unchanged at $5\%?$

$5\mathrm{.}3$ Comment on the ethics of each of these strategies.