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 R2,300,000 R 8,900,000 All Products Sales Cost of sales: Direct materials Direct labour Fringe benefits (20% of direct labour) Variable manufacturing overhead Building rent and maintenance Depreciation 920,000 552,000 110,400 27,600 29,900 147,200 2,314,000 2,047,000 409,400 89,000 89,000 222,500 1,787,100 Total cost of sales 5,170,900 Gross margin 512.900 3,729,100 Selling and administrative expenses: Product managers' salaries Sales commissions (5% of sales) Fringe benefits (20% of salaries and commissions) Shipping General administrative expenses 222,500 445,000 133,500 356,000 1,424,000 75,900 115,000 38,180 30,000 368,000 Total selling and administrative expenses 627,080 2,581,000 R (114,180) R 1,148,100 Net operating income (loss) *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. Required: 1-a.At current level of sales, compute the effect of net operating income if the Model C3 lawn chair is dropped Answer is not complete. in net operating income by Decrease 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