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: Model C3 Lawn Chair All Products Sales R2,000,000* R 8,000,000 Cost of sales Direct materials Direct labour Fringe benefits (20% of direct labour) Variable manufacturing overhead Building rent and maintenance Depreciation 480,000 96,000 24,000 26,000 128,000 800,000 2,080,000 1,840,000 368,000 80,000 80,000 200,000 Total cost of sales Gross margin Selling and administrative expenses 1,554,000 4,648,000 446,000 3,352,000 Product managers' salaries Sales commissions (5% of sales) Fringe benefits (20% of salaries and commissions) Shipping 200,000 400,000 120,000 320,000 320,000 1,280,000 66,000 100,000 33,200 27,000 General administrative expenses Total selling and administrative expenses Net operating income (loss) 546,200 2,320,000 R (100,200) R 1,032,000 The currency in South Africa is the rand, denoted here by R