Krystal-clear (KC) manufactures MP3 players and accessories including wireless earbuds. The company was recently approached by Audio 4All (A4), a manufacturer of sound systems, with an offer to supply wireless earbuds for $30 per pair. The cost of manufacturing earbuds for the month of April is extracted from KC's volume-based costing system as follows: Variable costs: Direct material Direct labour Variable overhead costs Fixed costs: Hiring of extrusion machine* Electricity-lighting of factory Other fixed overhead costs** Total cost Total units (Each unit = 1 pair of earbuds) $ (per unit) 7.50 15.00 5.00 0.50 2.00 5.00 35.00 20,000 * Unlike all other types of fixed overhead costs which are allocated to earbuds on a per unit basis, the cost of leasing the extrusion machine is completely allocated to earbuds as the machine is only used to produce earbuds. There are two more years to the lease agreement. ** 20% of other fixed overhead costs relates to the salary of the part-time employee who operates the extrusion machine, and his services can be terminated any time. Required 1. Using information from KC's volume-based costing system (i) prepare an analysis of relevant costs and (ii) indicate whether KC should accept or reject A4's offer. (4 marks)