Final answer:
The average fixed cost curve has a downward trajectory because as production increases, the overhead cost per unit decrease. This is referred to as 'spreading the overhead.' Without the production quantity, we cannot determine the total overhead applied to Product P4.
Step-by-step explanation:
The question involves the concept of overhead, specifically within the context of activity-based costing. To address the question:
Fixed costs, also known as overhead, represent expenses that do not change with the level of production output. When these costs are divided by the total quantity of units produced, it results in the average fixed cost (AFC).
The average fixed cost curve typically has a downward shape because as the quantity of output increases, the same amount of fixed cost is spread over more units, leading to a lower AFC per unit. This describes the concept of spreading the overhead, which simply means allocating a constant total fixed cost over a growing number of units, reducing the cost attributed to each individual unit.
In this specific case, with a supposed fixed cost of $1,000, as the production of Product P4 increases, the average fixed cost attribute to Product P4 decreases because the $1,000 fixed cost is distributed across more units. This explains the downward trajectory of the average fixed cost curve. However, without the quantity of Product P4 produced, specific values for overhead applied cannot be calculated. In practice, to calculate the total overhead applied to Product P4 under activity-based costing, we would need detailed information about the activities performed and the costs associated with each activity.