Final answer:
Prime cost, overheads, and cost allocations are accounting terms that refer to various business expenses. Overheads are fixed costs like rent or utilities, and spreading overhead means to allocate these costs across more units to reduce the average fixed cost per unit. The average fixed cost curve is hyperbolic, indicating decreasing cost per unit with increased production.
Step-by-step explanation:
The terms (a) prime cost, (b) overheads, and (c) cost allocations are used in the context of accounting and business management to denote different aspects of business expenses. Prime cost refers to the direct costs of manufacturing a product, which include raw materials and direct labor. Overheads, another name for fixed costs, encompass the expenses that are not directly tied to production volume, such as rent, utilities, and administrative salaries. Spreading the overhead means distributing these fixed costs over the units produced; as production increases, the average fixed cost per unit decreases. Cost allocations are the process of assigning indirect costs to different departments, products, or services.
If the fixed cost, or overhead, is $1,000, the average fixed cost curve would be a hyperbolic shape, starting high when quantity produced is low, and approaching zero as production volume increases. This illustrates that spreading the overhead across a greater number of units reduces the fixed cost burden on each unit.