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"Spreading overhead" refers to O A decrease in the average fixed cost as output rises O An increase in the amount of total cost O An increase in total fixed costs O An increase in the average fixed cost as output rises

"Spreading overhead" refers to O A decrease in the average fixed cost as output rises O An increase in the amount of total cost O An increase in total fixed costs O An increase in the average fixed cost as output rises

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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### Understanding "Spreading Overhead" **Question:** "Spreading overhead" refers to: - ○ A decrease in the average fixed cost as output rises - ○ An increase in the amount of total cost - ○ An increase in total fixed cost - ○ An increase in the average fixed cost as output rises This question aims to evaluate your understanding of how fixed costs behave as production levels change. **Explanation:** - **Fixed Costs:** These are the business expenses that remain constant regardless of the level of goods or services produced. - **Average Fixed Cost:** This is calculated by dividing total fixed costs by the number of units produced. As output increases, the average fixed cost per unit typically decreases because the same fixed cost is spread over more units. **Correct Answer:** - **A decrease in the average fixed cost as output rises.** This choice correctly describes the effect known as "spreading overhead." As output increases, the burden of fixed costs falls, reducing the average fixed cost per unit. ### Navigation - Use the "Previous" button to review previous questions. - Click "Next" to proceed once you have selected an answer. **Note:** This content is part of an educational exercise and should be used for study purposes to enhance your understanding of cost behaviors in business.
Transcribed Image Text:### Understanding "Spreading Overhead" **Question:** "Spreading overhead" refers to: - ○ A decrease in the average fixed cost as output rises - ○ An increase in the amount of total cost - ○ An increase in total fixed cost - ○ An increase in the average fixed cost as output rises This question aims to evaluate your understanding of how fixed costs behave as production levels change. **Explanation:** - **Fixed Costs:** These are the business expenses that remain constant regardless of the level of goods or services produced. - **Average Fixed Cost:** This is calculated by dividing total fixed costs by the number of units produced. As output increases, the average fixed cost per unit typically decreases because the same fixed cost is spread over more units. **Correct Answer:** - **A decrease in the average fixed cost as output rises.** This choice correctly describes the effect known as "spreading overhead." As output increases, the burden of fixed costs falls, reducing the average fixed cost per unit. ### Navigation - Use the "Previous" button to review previous questions. - Click "Next" to proceed once you have selected an answer. **Note:** This content is part of an educational exercise and should be used for study purposes to enhance your understanding of cost behaviors in business.
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