3 points Skipped Problem 9-2 Deciding Whether to Add or Drop a Product (LO1 - CC3) Tracey Douglas is the owner and managing director of Heritage Garden Furniture Ltd., a South African company that makes museum- quality reproductions of antique outdoor furniture. Tracey would like advice concerning the advisability of eliminating the model C3 lawn chair. These lawn chairs have been among the company's best-selling products, but they seem unprofitable. A condensed statement of operating income for the company and for the model C3 lawn chair for the quarter ended June 30 follows: Sales eBook Prine References Cost of sales: Direct materials Direct labour Fringe benefits (20% of direct labour) Variable manufacturing overhead Building rent and maintenance Depreciation Total cost of sales Gross margin Selling and administrative expenses: Product managers' salaries i Sales commissions (5% of sales) Fringe benefits (20% of salaries and commissions) Shipping General administrative expenses Total selling and administrative expenses Net operating income (loss) Model C3 Lawn Chair All R1,300,000 Products R5,900,000 520,000 1,534,000 312,000 1,357,000 62,400 271,400 15,600 59,000 16,900 1,200 59,000 147,500 1,010,100 3,427,900 289,900 2,472,100 42,900 147,500 65,000 295,000 21,580 88,500 20,000 236,000 208,000 944,000 357,480 1,711,000 R (67,500) R 761,100