Final answer:
Factory overhead can also be termed as manufacturing overhead, production overhead, factory expense, or factory burden. Spreading the overhead refers to allocating fixed costs over the units produced. The average fixed cost curve slopes downward as output increases, showing decreasing costs per unit.
Step-by-step explanation:
Other terms for factory overhead include manufacturing overhead, production overhead, factory expense, and factory burden. Factory overhead consists of all the costs associated with manufacturing beyond direct materials and direct labor. When we talk about spreading the overhead, we refer to the process of allocating the fixed costs of production, such as rent, utilities, and depreciation, over the units produced.
If the fixed cost is $1,000, the average fixed cost is calculated by dividing this figure by the quantity of output produced. As production increases, the average fixed cost per unit decreases because the same amount of overhead is spread over more units. The average fixed cost curve illustrates this relationship and typically shows a downward slope, reflecting the decreasing average fixed cost as output rises.