Question 5 Target Costing and Operating Decisions [20 marks] CDD Young Fashion Ltd is a well-recognised local manufacturer of hand-made knitwear at the Gold Coast City. Now, CDD Young Fashion Ltd has decided to introduce a new knitwear model (New Model) to attract new customers. The marketing and production departments find, The New Model can only sell for $180 per unit (market price) based on current market conditions. The predicted volume is 200,000 units per year. The estimated manufacturing costs per unit are: direct materials and direct labour costs $60 per unit. Other fixed overhead and period costs in yearly total are: $16,000,000. The estimated target cost gap is $20 per unit. The production department also finds, The warehouse is often over-filled with extra carrying costs, but sometimes is under-stocked and extra orders are required. The current material carrying cost is $2 per kg and the order processing cost is $250 per order. Each New model requires 0.2 kg of materials to finish. Part A [6 marks] What is the CDD's desired mark-up percentage on unit cost to be profitable? Show workings. Your Answer Part B [14 marks] What are costs of over-warehousing and under-warehousing? Provide strategic recommendations to close the target cost gap with respect to the inventory management process only. Hints: Be concise. Show workings if calculations are performed. Your Answer