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 R1,600,000* R 6,800,000 Cost of sales Direct materials Direct labour Fringe benefits (20% of direct labour) Variable manufacturing overhead Building rent and maintenance Depreciation 640,000 384,000 76,800 19,200 20,800 102,400 1,768,000 1,564,000 312,800 68,000 68,000 170,000 3,950,800 Total cost of sales Gross margin Selling and administrative expenses 1,243,200 356,800 2,849,200 Product managers' salaries Sales commissions (5% of sales) Fringe benefits (20% of salaries and commissions) Shipping 52,800 80,000 26,560 23,000 256,000 170,000 340,000 102,000 272,000 1,088,000 General administrative expenses Total selling and administrative expenses Net operating income (loss) 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: a. Direct labour is a variable cost at Heritage Garden Furniture b. All of the company's products are manufactured in the same facility and use the same equipment. Building rent, 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 lawn chair would have no effect on sales of other product lines e. Inventories of work in process or finished goods are insignificant. f. Shipping costs are traced directly to products g. General administrative expenses are allocated to products on the basis of sales dollars. There would be no effect on the total general administrative expenses if the model C3 lawn chair were dropped h. If the model C3 lawn chair were dropped, the product manager would be laid off