Tracey Douglas is the owner and managing director of Heritage Garden Furniture Ltd, a South African company that makes museum- quality reproductions of antique outdoorfurniture. Tracey would like advice concerning the advisability of eliminating the model C3 lawn chair. These lawn chairs have been among the company's bestselling 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 All Lawn Chair Products Sales R1,666,666$ R6,366, 666 Cost of sales: Direct materials 646,666 1,?68,666 Direct labour 364,666 1,564,666 Fringe benefits {26% of direct labour) 26,866 312,866 Variable manufacturing overhead 19,266 68,666 Building rent and maintenance 26,866 68,666 Depreciation 162,466 126,666 Total cost of sales 1,243,266 3,956,866 Gross margin 356,866 2,649,266 Selling and administrative expenses: Product managers' salaries 52,866 1?6,666 Sales commissions (5% of sales) 86,666 346,666 Fringe benefits {26% of salaries and commissions) 26,566 162,666 Shipping 23,666 272,999 General administrative expenses 256,666 1,638,666 Total selling and administrative expenses 433.353 1:972J999 Met operating income (loss) R (31:55@) R 377;299 *The currency in South Africa is the rand, denoted here by R. The following additional data have been supplied bythe company: The following additional data have been supplied bythe company: a. Direct labour is a variable cost at Heritage Garden Furniture. b. All ofthe 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 nished goods are insignificant. f. Shipping costs are traced directlyto products. g. General administrative expenses are allocated to products on the basis ofsales dollars. There would be no effect on the total general administrative expenses ifthe model C3 lawn chair were dropped. h. lfthe model C3 lawn chairwere dropped, the product managerwould be laid off. Required: n-1. At current level ofsales. compute the effect of net operating income ifthe Model C3 lawn chair is dropped. ZE 1-b. I|Nould you recommend thatthe model C3 lawn chair be dropped? 0 Yes O No 7. What would sales ofthe model C3 lawn chair have to be, at minimum, in order tojustify 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.) El:l