Final answer:
Manufacturing overhead is tied to indirect production costs and cannot be directly attributed to specific jobs. Fixed costs like overhead get spread out as production increases, leading to lower average fixed costs per unit and demonstrating the concept of 'spreading the overhead.'
Step-by-step explanation:
Manufacturing overhead relates to production costs as a whole; such costs cannot be assigned to specific jobs on the basis of actual costs incurred. Manufacturing overhead includes all the indirect costs associated with the production process, like factory rent, utility bills, and salaries for support staff. These costs do not vary directly with the number of items produced, making them fixed costs, commonly referred to as "overhead."
When considering a fixed cost of $1,000, and dividing this by the quantity of output produced, we obtain the average fixed cost. The average fixed cost curve would typically be a hyperbolic shape, decreasing as production increases. This represents "spreading the overhead," which means that as more units are produced, each unit bears a smaller portion of the fixed overhead, thus leading to economies of scale. Conversely, diseconomies of scale occur when the long-run average cost of producing output increases as total output increases—this typically happens beyond a certain level of production.