Final answer:
The correct expression for fixed overhead production-volume variance is option D) budgeted fixed overhead minus fixed overhead allocated for actual output, which measures the difference between expected and actual overhead at the actual production levels. The average fixed cost decreases as output increases, depicting the 'spreading the overhead' concept.
Step-by-step explanation:
The correct mathematical expression to calculate the fixed overhead production-volume variance is D) budgeted fixed overhead − fixed overhead allocated for actual output. Production-volume variance is a measure of the difference between what a company expected to spend on fixed overheads (budgeted) and what it actually would have spent at the actual level of production (fixed overhead allocated for actual output).
When discussing fixed costs or overhead, as production increases, these costs are spread over more units, which lowers the average fixed cost per unit. If the fixed overhead cost is $1,000, this overhead cost remains constant regardless of the level of production. Therefore, the average fixed cost curve is a hyperbola, which decreases as production increases, illustrating the concept of spreading the overhead. At zero production, the entirety of the fixed costs would reflect in the vertical intercept of the total cost curve since there are no variable costs.
By 'spreading the overhead,' we mean that as the quantity of output increases, the same fixed costs are distributed across more units of output, effectively reducing the average fixed cost per unit.