The term fixed cost refers to a cost that does not fluctuate as the number of items a company produces increases or decreases. It is temporally dependent and changes after a specific time have passed. Fixed costs are incurred regardless of the number of units produced. The fixed cost falls with an increase in the number of units produced. Increased output lowers expenses and raises profits. Rent, salary, and property taxes are all expenses.
A variable cost is a cost that varies in response to changes in production levels. It is volume-dependent and varies according to the amount of material produced. Variable costs are incurred as units are manufactured. With the level of production, there is no effect on profit. Labor costs, raw material costs, and sales commissions are all factors to consider.
Sunk costs are quite different from the fixed costs as this cost cannot be refunded in the future.
For example, two utensils are being bought; one is made of steel and costs $14, and another is made of plastic, which costs $10. It is known that in the market, steel is a valuable product, and thus one can sell the used steel utensil and receive a refund of $10, whereas plastic is not at all valuable and could not be resold. Hence, one can say that $10 for a plastic utensil is a sunk cost that one cannot recover again. Whereas, the steel utensil is a fixed cost whose value can be refunded in the later future. Moreover, these costs might vary with time, steel might get expensive in the future and can rise to $20 per utensil, which implicates the variable cost.
