Final answer:
The factor that causes overhead costs is called a cost driver. The average fixed cost curve represents how fixed costs spread over increasing levels of production, demonstrating a downward trend as the quantity of output increases, showing 'spreading the overhead'.
Step-by-step explanation:
A factor that causes overhead costs is called a cost driver. Overhead costs, also known as fixed costs, do not vary with the level of production or services provided within a certain range of activity. If these fixed costs are divided by the number of units produced, the result is known as the average fixed cost. When the fixed cost of $1,000 is divided by the quantity of output produced, we get a curve that reflects the average fixed cost for each level of production.
The average fixed cost curve typically shows a downward trend as the quantity of output increases. This demonstrates the concept of 'spreading the overhead' which means that as production increases, the fixed cost is spread over more units, resulting in a lower average fixed cost per unit.
For example, if the fixed cost is $1,000 and 10 units are produced, the average fixed cost per unit is $100. However, if 100 units are produced, the average fixed cost per unit decreases to $10. The average fixed cost curve will continue to decline, approaching but never reaching zero, as the quantity of output increases.