Omega Company Limited produces and markets e-readers. It has decided to create and market a new model with bluetooth controls and live update facilities. Omega's managers are considering to call the new product 'e-care'. Based on past experience they expect the total life cycle of the e-care to be five years, with the design phase taking about a year. They budget the following costs for the e-care: Fixed costs R&D costs Design costs Manufacturing Variable Cost per unit Total fixed Year 1 Year 2 Year 3 Year 4 Year 5 costs for LC - $1,000,000 $1,000,000 - $2,108,000 $ 60.00 $2,108,000 Packaging $ 20.00 - Distribution Advertising $7.00 $ 10.00 Customer service $5,500,000 $1,375,000 $1,375,000| $1,375,000| $1,375,000 $275,000 $275,000 $275,000 $275,000 $1,100,000 $310,000 $310,000 $310,000 $310,000 $1,240,000 $500,000 $350,000 $350,000 $300,000 $1,500,000 $150,000 $175,000 $175,000 $300,000 $800,000 The managers at Omega are thinking of two alternatives: Sell the e-care at $175 each from the outset. At this price they expect to sell 160,000 units over its life cycle. Outsource the manufacturing of the e-reader while continuing to package, distribute, and advertise it. The result would be a reduction of fixed production costs from $5,500,000 to $1,500,000 and an increase to variable manufacturing costs from $60 to $85 per unit. Question 1 Consider the company uses the life cycle costing. Which alternatives would you recommend to the company? Show calculations to support your answer. (12 marks)