Problem 9-2 Deciding Whether to Add or Drop a Product (LO1 - CC3) 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 R2,100,000 R5,500,000 Cost of sales: Direct materials. 840,000 2,158,000 Direct labour 504,000 1,909,000 Fringe benefits (20% of direct labour) 100,800 381,800 Variable manufacturing overhead 25,200 83,000 Building rent and maintenance 27,300 83,000 Depreciation 134,400 207,500 Total cost of sales 1,631,700 4,822,300 Gross margin 465,300 3,477,700 Selling and administrative expenses: Product managers' salaries 69,300 207,500 Sales commissions (5% of sales) 105,000 415,000 Fringe benefits (20% of salaries and commissions) Shipping 34,860 124,500 20,000 332,000 General administrative expenses 336,000 1,320,000 Total selling and administrative expenses. $73,160 2,407,000 Next>