Final answer:
The variance in question, caused by discrepancies between actual and estimated activity levels impacting the fixed manufacturing overhead costs, is known as the volume variance. The average fixed cost curve, given a $1,000 overhead, would show a hyperbolic decline as production volume increases, demonstrating the benefit of spreading the overhead across more units.
Step-by-step explanation:
The fixed manufacturing overhead variance caused by actual activity being different from the estimated activity used in calculating the predetermined overhead application rate is called the volume variance. Fixed manufacturing overhead costs, commonly referred to as overhead, remain constant regardless of the production level. If a company estimates a fixed overhead of $1,000, spreading this cost among the units produced will result in the average fixed cost. As production increases, the average fixed cost per unit decreases, illustrating the concept of 'spreading the overhead.'
The average fixed cost curve typically represents a hyperbolic shape, as the average fixed cost diminishes continuously with increased production volume. This visual depiction emphasizes the advantages of producing a larger quantity, where each additional unit bears a smaller portion of the fixed overhead, thereby lowering the average cost.