Final answer:
Indirect costs are expenses related to the general management of an organization and are not directly tied to manufacturing or selling. Fixed costs, like rent on a factory or machinery costs, do not depend on the level of production and are considered sunk. Variable costs vary with production volume and have diminishing marginal returns.
Step-by-step explanation:
The costs associated with the general management of an organization rather than with the manufacturing or selling are known as indirect costs. Indirect costs cover a range of expenses that apply to multiple activities, not directly tied to a particular product or service. On the contrary, direct costs are those that can be directly attributed to the production of a specific product or service.
In the short-run perspective of cost, we have fixed costs and variable costs. Fixed costs, such as rent on a factory or the cost of machinery, do not change with the level of production and are considered sunk costs. They are incurred before any production takes place and remain constant regardless of output levels. Variable costs, however, fluctuate with production volume and typically show diminishing marginal returns, meaning the additional cost of producing one more unit of output increases as production rises.