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. Ms. Douglas would like advice conceming the advisability of eliminating the model C3 lawnchair. These lawnchairs have been among the company's best-selling products, but they seem to be unprofitable. A condensed absorption costing income statement for the company and for the model C3 lawnchair for the quarter ended June 30 follows Model C3 All Products Lawnchair R 3,000,000 R310,000 Sales Cost of goods sold: Direct materials Direct labor Fringe benefits (20% of direct labor) Variable manufacturing overhead Building rent and maintenance Depreciation 769,000 123,000 690,000 73,000 138,000 14,600 4,600 5,000 20.100 29,000 31.000 76,000 Total cost of goods sold Gross margin Selling and administrative expenses 1,733,000 240,300 1,267,000 69,700 Product managers' salaries Sales commissions (5% of sales) Fringe benefits (30% of salaries and commissions) Shipping General administrative expenses 85,000 150,000 70.500 6,000 15.500 6,450 130,000 28,150 465,000 49,000 Total selling and administrative expenses 900,500 105,100 Net operating income (loss) R 366,500 R(35,400) The currency in South Africa is the rand, denoted here by R The following additional data have been supplied by the company: a. Direct labor is a variable cost b. All of the company's products are manufactured in the same facility and use the same equipment. Building rent and maintenance and depreciation are allocated to products using various bases. The equipment does not wear out through use; it eventually becomes obsolete C. There is ample capacity to fill all orders. d. Dropping the model C3 lawnchair would have no effect on sales of other product lines e. Work in process and finished goods inventories are insignificant. f. Shipping costs are traced directly to products. g. General administrative expenses are allocated to products on the basis of sales. There would be no effect on the total general administrative expenses if the model C3 lawnchair were dropped. h. If the model C3 lawnchair were dropped, the product manager would be laid off Required: 1a. Calculate the effect on the overall company's net operating income if the Model C3 lawnchair is dropped? (Input the amount as a positive value. Omit the "R" sign in your response.) (Click to select) in net operating income 1b. Would you recommend that the model C3 lawnchair be dropped? O Yes O No 2. What would sales of the model C3 lawnchair have to be, at minimum, in order to justify retaining the product? (Omit the "R" sign in your response.) Break-even point