You are a member of the board of directors of a small manufacturing firm. The firm is about to hire a new CEO and is discussing the compensation package that will be offered. A salary of $350,000 has already been settled, but the board is uncertain how to structure the bonus. The proposal that has gained the most support is to pay a bonus based on some percentage of operating income. Some of the board members believe that the bonus should be based on absorption costing operating income while others think that variable costing operating income should be used. Which option do you support? State clearly why this option is best.

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