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: Book Sales t Cost of sales: rences Direct materials Direct labour Fringe benefits (20% of direct labour) Variable manufacturing overhead Building rent and maintenance Depreciation Total cost of sales Gross margin Selling and administrative expenses: Product managers' salaries Sales commissions (5% of sales). 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. Model C3 All Lawn Chair Products R1,200,000 R5,600,000 480,000 1,456,000 288,000 1,288,000 57,600 257,600 14,400 56,000 15,600 56,000 76,800 140,000 932,400 3,253,600 267,600 2,346,400 39,600 140,000 60,000 280,000 19,920 $4,000 19,000 224,000 192,000 330,520 896,000 1,624,000 R (62,920) R 722,400 The following additional data have been supplied by the company