Final answer:
Normal costing allocates indirect costs based on budgeted indirect-costs rates times the actual activity consumption. Key concepts include average total cost, average variable cost, marginal cost,.
Step-by-step explanation:
Normal costing allocates indirect costs based on the budgeted indirect-cost rates times the actual activity consumption. Cost accounting involves tracking and analyzing operational costs, and normal costing is a method used to apply indirect costs to a product. Different cost measures like average total cost, average variable cost, and marginal cost help businesses understand their cost structures on a per-unit basis. Average total cost is the full cost of production per unit, which includes both fixed and variable costs. Average variable cost is the variable cost per unit, and marginal cost is the cost of producing one additional unit. These measures are crucial for understanding how efficiently a company is producing goods and can inform pricing and production decisions.
For instance, the concept of "spreading the overhead" involves dividing fixed costs, often referred to as "overhead", by the quantity of output to calculate the average fixed cost. If the fixed cost is $1,000, the average fixed cost curve typically slopes downward as output increases, illustrating that each additional unit produced distributes the fixed costs over more units, thereby reducing the average fixed cost per unit.