Final answer:
The term for an estimated overhead rate computed at the beginning of the year is called a predetermined manufacturing overhead rate. As production increases, the average fixed cost decreases, representing the 'spreading the overhead,' which results in a lower cost per unit.
Step-by-step explanation:
Predetermined Manufacturing Overhead Rate
The term you are looking for is A) predetermined manufacturing overhead rate. This is an estimated manufacturing overhead rate computed at the beginning of the year. It's used to allocate overhead costs to products based on the planned overhead costs and estimated activity levels.
Now, regarding average fixed cost and spreading overhead: Average fixed cost is calculated by dividing the total fixed cost, which is also known as overhead, by the number of units produced. In your example, if the fixed cost is $1,000, the average fixed cost would decrease as the quantity of output increases. This results in an average fixed cost curve that is hyperbolic, decreasing continuously as production goes up. This demonstrates the concept of spreading the overhead, which essentially means distributing fixed costs over a larger number of units, thus reducing the cost per unit.