Still Waters, Inc., is a producer of plastic bottles for various beverages. Recently, it was approached by a customer who wanted a quote on a new type of beverage bottle that would be much more complex to develop because of its special top. Still Waters’ management determined that the customer would pay $0.30 per bottle. It normally earns a 25% profit margin on its products. The costs it estimates it would incur to develop the bottle are:

• $50,000 development costs. The company would ultimately sell 2,500,000 of these bottles to the new customer.

• $150,000 in machine purchases. The machines would be able to produce the entire 2,500,000 without replacement.

• $0.08 in raw materials costs

• $0.04 in direct labor costs

• $0.05 in shipping and distribution costs

• $25,000 in fixed costs for maintaining the relationship with the customer over the entire 2,500,000 units of sale

REQUIRED:

a. What is the target cost for this product?

b. If the firm produces the way it intends, can it make its target margin?