Suppose you serve on the board of directors of XYZ company , amanufacturer of bathroom fixtutures that recently adopted just in time production. Part of your responsibility is to develop a compensation contract for Toni Moen, the vise president of manufacturing. to give her the incentive to make decision that will increase the company's profit, the board decides to give the Moen a year end bonus if XYZ meets the target operating income.

prepare a memo to the Chairman of the board, Hebtor Koler, describeing whether the bonus contract should based on absorption costing or variable costing.