Homework Comparing Absorption Approach and Contribution Approach You are the manger of Miqat enterprises, manufacturers of ladies shoes. Currently, the company operates the traditional costing system. You are determined to improve on management ability to take operating decisions. Following your enquiries, your friend has just introduced you to a marginal costing system for consideration. Accordingly, you assemble the following details: Direct materials used KD400,000; Supervisory salaries KD60,000; Property taxes KD20,000; Direct labour KD330,000; Supplies KD20,000; Fixed portion of utility KD15,000; Variable portion of utility KD40,000; Fixed portion of indirect labour KD50,000; Variable portion of indirect labour KD90,000; Depreciation KD200,000; Fixed selling expenses KD220,000; Variable selling expenses KD80,000; Fixed general administrative expenses KD144,000; Variable general administrative expenses KD119,000. Sales were KD2,200,000. Assume that beginning and ending inventory is nil. In addition, assume that all variable costs fluctuate in direct proportion to sales and that fixed costs are unaffected over a wide range sales. Furthermore, regard direct labour and supplies as variable costs. Required. 1. Prepare and compare an income statement based on the absorption approach with one based on the contribution approach. 2. Evaluate operating income at a volume of KD2,000,000 sales using each of the income statements prepared in 1 above. 3. Which of the two income statements would you recommend for the purpose of operating decision-making? Why