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IslandTech Innovations Inc. is a leading manufacturer of eco$-$friendly outdoor equipment based on

Vancouver Island. The company is known for its high$-$quality camping gear and outdoor apparel,

which are made using sustainable materials and practices. IslandTech's commitment to

environmental conservation has earned it a strong customer base among outdoor enthusiasts.

As IslandTech Innovations Inc. prepares its financial statements for the fiscal year, management

faces decisions that could impact the company's reported financial position and performance.

These decisions revolve around the classification of inventory costs and the valuation of accounts

receivable, both of which are crucial for the company's financial health and its ability to meet bank

loan covenants that require maintaining a specific current ratio.

The company has recently launched a new line of eco$-$friendly, insulated sleeping bags. The

production of these sleeping bags involves higher costs due to the use of organic materials and fairwage labor practices. Management is considering the reclassification of certain direct labor and

overhead costs from product costs to period expenses, which could affect the cost of goods sold

$($COGS$)$ and, consequently, the company's gross profit margin.

IslandTech offers credit terms to its wholesale clients. Recently, there has been a slight increase in

the average collection period for receivables. Management is contemplating adjusting the

percentage of accounts deemed uncollectable, which would impact the allowance for doubtful

accounts and the net realizable value of the company's accounts receivable.

What should IslandTech$$s management do$?$

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