Imagine that you own your own business, or you are the manager of a company

The Bakery would be a business that I would be starting. The variable costs include

Ingredients

If you bake 10 percent more food next month, the cost of your ingredients can be expected to also rise by 10 percent, or $1,000.

Supplies and Packaging Materials

The costs of materials and supplies used to make and package your baked food are variable. Such items might include bags, twist ties, labels, stickers, ribbons, tape, boxes, plastic wrap and foil.

Payroll

If you pay bakers based on the amount of food they make or pay commission to a sales team based on their sales, these costs are variable. Only the commissions are variable.

Electricity

Electricity is an example of a cost that is only partially variable. The cost of electricity to run the equipment on which you prepare food -- such as ovens, mixers and fryers -- is variable.

Fixed’ represents your rent, advertising, insurance premiums, any payments due on loans or special equipment.

Sunk costs are the costs that cannot be recovered once invested. The best examples of sunk cost are the initial advertisement costs you incurred when you started the business