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 R1,800,000 R 7,400,000 Cost of sales Direct materials Direct labour Fringe benefits (20% of direct labour) Variable manufacturing overhead Building rent and maintenance Depreciation 720,000 1,924,000 432,000 1,702,000 340,400 74,000 74,000 185,000 86,400 21,600 23,400 115,200 Total cost of sales Gross margin Selling and administrative expenses: 1,398,600 4,299,400 401,400 3,100,600 Product managers' salaries Sales commissions (5% of sales) Fringe benefits (20% of salaries and commissions) Shipping 59,400 90,000 29,880 25,000 288,000 185,000 370,000 111,000 296,000 1,184,000 General administrative expenses Total selling and administrative expenses Net operating income (loss) 492,280 2,146,000 R (90,880) R 954,600 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