Final answer:
The difference between actual factory overhead and overhead applied to production represents the total overhead variance, which can be further dissected into more specific variances.
Step-by-step explanation:
The question is about the three-variance method used for analyzing factory overhead costs. Within this method, the difference between actual factory overhead and factory overhead applied to production is not any of the options given directly, but rather the total overhead variance. This variance can then be broken down into more specific categories, such as the variable overhead efficiency variance, fixed overhead spending variance, variable overhead spending variance, and fixed overhead efficiency variance. However, none of these specific variances alone represents the total difference between actual and applied overhead.
Now, to talk about fixed costs or overhead, when fixed cost is divided by the quantity of output produced, we obtain the average fixed cost (AFC). The AFC curve typically slopes downwards as output increases because the fixed cost is spread over a greater number of units, demonstrating the concept of "spreading the overhead." This implies that as more goods are produced, the fixed cost attributed to each unit of production decreases, thus reducing the AFC.