Final answer:
The unit product cost under activity-based costing is determined using average cost or marginal cost, with average cost being the total cost divided by the output quantity, and marginal cost being the additional cost per additional unit produced. 'Spreading the overhead' refers to decreasing the average fixed cost per unit as more units are produced.
Step-by-step explanation:
The question about determining the unit product cost under activity-based costing relates to the field of management accounting, specifically cost accounting. When calculating the unit product cost, we may use average cost (AC) or marginal cost (MC). The average cost is defined as the total cost (TC) divided by the quantity of output produced (Q). In contrast, the marginal cost is the additional cost incurred from producing an additional unit of output, calculated as the change in total cost (∆TC) divided by the change in quantity (∆Q).
Within the context of averaging fixed costs, the concept of "spreading the overhead" refers to the process of allocating a fixed cost over an increasing number of units. As more units are produced, the average fixed cost per unit decreases. This is because the same total amount of fixed cost is divided over more units, reducing the cost attributed to each individual unit.