To determine costs, managers look for costs that in total do not vary with changes in output, whereas costs are those costs that changes with the level of output.

Fixed costs and Variable costs

Explanation:

Fixed costs do not vary with production levels. Sometimes they are referred  as period cost. In a financial year, fixed cost will be constant figures whether production goes up and down. Examples of fixed costs include rent, salaries, depreciation, and administrative expenses. The depreciation cost of a machine is a constant figure per year throughout its useful life.  It does not change whether the asset is over or underutilized.

Variable costs are expenses that are affected by the production level. They are costs directly associated with the production process. Examples include raw materials and packaging.  As production increases, the cost of raw materials will increase. Variable costs are dependent on production output.

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