Final answer:
Fixed production overheads are best applied using absorption costing to account for production fluctuations over a cycle of years by averaging out the overhead costs over all units produced, rather than based on actual output for a given period.
Step-by-step explanation:
The student's question pertains to the methods used to calculate and apply rates for fixed production overheads. Fixed production overheads are best applied in a manner that reflects anticipated fluctuations in production over a cycle of years when they are computed under the concept of absorption costing or full costing. This is because absorption costing allocates fixed overheads to products based on estimated or normal capacity rather than actual output, which tends to smooth out fluctuations in overhead application rates over longer periods.Under absorption costing, firms spread the fixed overhead cost across the units produced, which is referred to as "spreading the overhead". This ensures that each unit carries a portion of the fixed overheads, leading to a stable cost per unit when production levels are varying. This approach contrasts with variable costing, which only assigns variable costs to units.
In summary, the content loaded application rates for fixed production overheads must consider the production cycle over years to best anticipate fluctuations. Absorption costing achieves this by spreading overheads across all units produced based on standard or normal capacity, rather than the actual output per period which can vary significantly.