Question One Central Machinery Ltd. is preparing its budget for the year ending 30 June 2021. For the fuel expenses consumption, it is decided to estimate an equation of the form, y = a + bx, where y is the total expense at an activity level x, a is the fixed expense and b is the rate of variable cost. The following information relate to the year ended 30 June 2020: Month Month Machine hours (Sh.,,000") 34 30 2019 July August September October November December Fuel Oil expense (Sh. ,,000") 640 620 620 590 500 530 Machine hours (Sh. ,,000") 26 26 31 35 43 48 2020 January February March April May June Fuel oil expense (Sh. ,000") 500 500 530 550 580 680 34 39 42 32 The annual total and monthly average figures for the year ended 30 June 2020 were as follows: Machine hours Fuel oil expense (,000") (Sh.,000") Annual total 420 6,840 Monthly average 35 570 Required: (1) Using simple linear regression analysis, estimate and interpret the fixed and variable cost elements of the fuel oil expense (5 marks) (ii) Using the results in (a) above, predict the fuel oil expense for November 2021 if experience indicates that 41,000 machine hours will be used. (2 marks) (b) By way of explanatory notes, briefly state why you agree or do not agree with the following statement: (i) Variable costs are always relevant costs while fixed costs are not. (1 Mark) (ii) The book value of an asset is irrelevant in decision making. (1 Mark) (iii) Variable costs and differential costs mean the same thing. (1 Mark)