Final answer:
The correct option is a. option b.
Overapplied overhead in a job cost system can be explained by higher actual volumes and lower actual fixed costs than expected, known as option B. The average fixed cost curve shows the overhead spreading effect, lowering cost per unit as output increases. Overexpansion can lead to diseconomies of scale, raising average costs and reducing competitiveness.
Step-by-step explanation:
When a dye company uses a job cost system with a predetermined factory overhead rate based on expected fixed costs and expected volume, overapplied overhead at the end of a fiscal year could be attributed to actual production volumes being higher than expected and actual fixed costs being less than expected. Overapplied overhead occurs when the overhead assigned to jobs throughout the year is greater than the actual overhead incurred. This situation is represented by option B: actual fixed costs are less than expected, but the actual volume is more than expected.
The term overhead is commonly used to describe fixed costs. If you divide a fixed cost, such as $1,000, by the quantity of output produced, you obtain the average fixed cost. The average fixed cost curve typically slopes downwards as output increases, demonstrating the concept of "spreading the overhead"; which means that as production volume increases, the fixed cost is distributed over more units, thereby lowering the cost per unit.
In the context of long-run average cost curves, when a firm or a factory expands beyond an optimal size, it may encounter diseconomies of scale, where average costs begin to increase with higher levels of output and scale. This is due to management difficulties and inefficiencies that come with size, potentially leading to higher production costs and making the firm less competitive against those with lower average costs.