Rainbow Cruises operates a week-long cruise tour through the Hawaiian Islands. Passengers currently pay $1,650 for a two-person cabin, which is an all-inclusive price that includes food, beverages, and entertainment. The current cost to Rainbow per two-person cabin is $1,370 for the week-long cruise, and at this cost, Rainbow is able to earn the minimum profit margin needed to operate the business. Rainbow competes with two other cruise lines and, to date, $1,650 has been the prevailing market price for the week-long cruises. Each cruise line provides exactly the same services to their passengers, but recently one of Rainbows competitors found a way to permanently lower its price to $1,400 per two-person cabin.

a. At a new market price of $1,400 per two-person cabin, calculate the target cost that will allow Rainbow to earn the same profit margin percentage it currently earns. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Target cost=

b. Calculate the target cost reduction that Rainbow must achieve if it expects to remain competitive. (Round your answer to 2 decimal places.)

Target Cost reduction=