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 Cost of sales: Model C3 Lawn Chair R2,300,000* All Products R8,900,000 Direct materials 920,000 2,314,000 Direct labour 552,000 2,047,000 Fringe benefits (20% of direct labour) 110,400 409,400 Variable manufacturing overhead 27,600 89,000 Building rent and maintenance 29,900 89,000 Depreciation 147,200 222,500 Total cost of sales Gross margin Selling and administrative expenses: 1,787,100 5,170,900 512,900 3,729,100 Product managers' salaries Sales commissions (5% of sales) 75,900 222,500 115,000 445,000 38,180 133,500 30,000 356,000 368,000 1,424,000 627,080 2,581,000 Fringe benefits (20% of salaries and commissions) Shipping General administrative expenses Total selling and administrative expenses Net operating income (loss) *The currency in South Africa is the rand, denoted here by R. R (114,180) R1,148,100 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. Required: -1. At current level of sales, compute the effect of net operating income if the Model C3 lawn chair is dropped. in net operating income by R 1-b. Would you recommend that the model C3 lawn chair be dropped? Yes No 2. What would sales of the model C3 lawn chair have to be, at minimum, in order to justify retaining the product? (Hint: Set this up as a break-even problem, but include only the relevant costs from part (1).) (Round "Contribution margin ratio" to 2 decimal places and final answer to the nearest whole number.) Sales volume R