Final answer:
Closing overapplied manufacturing overhead to cost of goods sold results in a decrease in the cost of goods sold and a decrease in the overapplied overhead. 'Spreading the overhead' means allocating fixed cost over a larger number of units produced, which reduces the average fixed cost per unit as production increases.
Step-by-step explanation:
When closing overapplied manufacturing overhead to cost of goods sold, the correct answer is that the cost of goods sold will decrease. This is because the overapplied manufacturing overhead means that the allocated overhead costs during a period were higher than the actual overhead costs. To correct this, the overapplied amount is credited to the cost of goods sold, which reduces the total cost of goods sold. As a result, the overapplied manufacturing overhead itself will also decrease because this correction entails removing the excess from the overhead account and adjusting the cost of goods sold accordingly.
The term 'spreading the overhead' refers to distributing fixed costs over the units produced. Fixed costs remain constant regardless of the level of production. As more units are produced, the average fixed cost per unit decreases since the total fixed cost is allocated over an increasing number of units. If the total fixed cost is $1,000, and more units are produced, the average fixed cost per unit will decline, thus 'spreading' the costs over a larger quantity of output. Visually, the average fixed cost curve would be downward-sloping, reflecting the declining cost per unit as production volume increases.