Final answer:
The Predetermined Overhead Rate is calculated by spreading the total fixed costs over the units produced, with the average fixed cost curve showing a downward trend as output increases. This demonstrates the concept of 'spreading the overhead', meaning that the fixed cost per unit decreases as production rises.
Step-by-step explanation:
The formula for Predetermined Overhead Rate is not directly provided in the question but it can be derived by understanding that overhead refers to fixed costs which are not dependent on the level of goods or services produced by the business. When we speak about spreading this overhead, we discuss how these fixed costs are allocated across the units produced. To calculate average fixed cost, you divide the total fixed cost by the quantity of output produced. In this case, if the fixed cost is $1,000 and you increase output, the average fixed cost decreases because the same amount of fixed cost is spread over more units of output.
The curve representing average fixed cost typically shows a downward trend as the quantity of output increases. This is because the fixed cost is constant (in this scenario, $1,000), and as you produce more, each unit bears a smaller share of this cost. This curve exemplifies the concept of spreading the overhead, which means as you produce more, the fixed cost per unit goes down.
To determine the firm's cost structure as referenced in the question, you would follow the steps provided in your textbook, which often includes calculating the total cost, average variable cost, average total cost, and marginal cost using the formulas given. These reflect both fixed and variable elements of costs and are important for understanding overall production and pricing strategy.