Final answer:
The expected cost of all indirect manufacturing items is found in the overhead budget. The overhead budget includes fixed costs, which are costs that remain constant regardless of production levels, and are integral to understanding how businesses spread costs over increasing production levels.
Step-by-step explanation:
The expected cost of all indirect manufacturing items is shown in the overhead budget. Fixed costs, also known as overhead, are costs that do not change regardless of the output produced. The fixed cost, when divided by the quantity of output produced, gives us the average fixed cost. If the fixed cost is $1,000, the average fixed cost curve would slope downward as output increases, illustrating the concept of "spreading the overhead" meaning that the more you produce, the lower the average fixed cost per unit becomes because the fixed costs are distributed over a larger number of units.
Additionally, understanding cost behaviors, such as diseconomies of scale and economies of scale, is important in business operations. Diseconomies of scale occur when the long-run average cost of producing output increases as total output increases. In contrast, economies of scale happen when the long-run average cost of producing output decreases as total output increases. These concepts affect the firm's costs of production and are integral to pricing and profit strategies.