Final answer:
The predetermined overhead rate is calculated using the estimated overhead cost divided by estimated labor cost, and the average fixed cost curve depicts how fixed cost per unit decreases as production increases. This concept is known as 'spreading the overhead.' Changes in labor wages can further influence a firm's use of labor versus machinery.
Step-by-step explanation:
The predetermined overhead rate used by Nexus Corporation is calculated by dividing the estimated total manufacturing overhead cost for the period by the estimated total amount of the allocation base, which in this case is the direct labor cost. The specific rate would depend on the estimated costs and labor costs set by Nexus Corporation for the given period. To explain this concept further, consider fixed costs to be analogous to overhead. If you have a fixed cost, such as $1,000, and divide it by the quantity of output produced, you get the average fixed cost. The average fixed cost curve typically has a downward slope because as you produce more, you spread the fixed costs over more units, lowering the cost per unit. This is known as spreading the overhead. Additionally, firms may adjust their mix of labor and capital in response to changes in wages or other factors to minimize costs while maximizing labor productivity.