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 museu 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 follo Model C3 Lawn Chair All Products R1,600,000* R6,800,000 Sales 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 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) 640,000 1,768,000 384,000 1,564,000 76,800 312,800 19,200 68,000 20,800 68,000 102,400 170,000 1,243,200 3,950,800 356,800 2,849,200 52,800 170,000 80,000 340,000 26,560 102,000 23,000 272,000 256,000 1,088,000 438,360 1,972,000 R (81,560) R 877,200 *The currency in South Africa is the rand, denoted here by R. The following additional data have been supplied by the company: