Final answer:
The statement is describing Fixed Costs, also known as overhead. The average fixed cost curve is a downward sloping curve, meaning as production increases, the fixed cost per unit decreases. This demonstrates the concept of 'spreading the overhead,' where overhead costs are distributed across a larger number of units, reducing the average fixed cost per unit.
Step-by-step explanation:
The statement provided describes the concept of Fixed Costs, also known as overhead costs. Fixed costs are expenses that do not change with the level of output produced by a business. If a company has a fixed cost of $1,000, no matter how many units they produce, this cost remains constant. When you divide this fixed cost by the quantity of output, you get what is known as the average fixed cost.
The average fixed cost curve typically looks like a downward sloping curve that approaches zero as the quantity of output increases. This shape occurs because the same total fixed cost is spread over more and more units as the quantity of output rises. The action of distributing the fixed cost over a greater number of units is what is meant by "spreading the overhead." Essentially, as production increases, the cost per unit attributable to fixed costs goes down, making each unit cheaper to produce in terms of the fixed cost allocation.