Final answer:
A fixed cost not directly traceable to a single business segment is known as a common fixed cost. It represents shared expenditures across segments, such as rent or equipment, which is part of overhead. 'Spreading the overhead' shows how average fixed cost decreases as production increases.
Step-by-step explanation:
A fixed cost that supports the operations of more than one segment, but is not traceable in whole or part to any one segment is a common fixed cost. When discussing fixed costs in the context of production, we refer to these as expenditures that do not change regardless of the level of production. Examples include rent on a factory, cost of machinery, research and development, and brand advertising. A common fixed cost is shared across multiple departments or segments of a business and cannot be attributed directly to any single segment.
The term overhead is also commonly used to describe fixed costs. When these costs are divided by the quantity of output produced, the result is the average fixed cost. For example, if the fixed cost is $1,000 and you produce 100 units, the average fixed cost is $10 per unit. As production increases, the average fixed cost decreases, which is known as "spreading the overhead" and is represented by a downward-sloping average fixed cost curve.