Final answer:
The student's question requires creating a cost sheet, and involves concepts like total costs, economies of scale, and overhead. These principles help understand how increasing production lowers per unit costs and how fixed and variable costs combine to form total costs.
Step-by-step explanation:
The question from the student involves calculating a cost sheet which includes multiple categories of costs and revenue. To understand this, we need to review key concepts such as total costs, fixed costs, variable costs, economies of scale, and overhead.
Total costs are the sum of fixed and variable costs. For example, if a factory's fixed costs are $1,000 and the variable cost per unit is $80, then producing 2 units will result in total costs of $1,160 (fixed costs of $1,000 + 2 units × $80).
Economies of scale refer to the decrease in average costs as production scales up. For instance, if producing 1,000 units costs $12 each and producing 2,000 units reduces the cost to $8 each, there are economies of scale.
When discussing fixed costs, such as overhead, it's important to consider average fixed costs which is fixed cost divided by quantity. The concept of 'spreading the overhead' refers to how increasing production can distribute fixed costs over more units, reducing the average fixed cost per unit.