Which cost directly relates to production levels and can fluctuate with output?

The correct answer is variable costs, which are expenses that change in direct proportion to the level of production or output. As production increases, variable costs rise because they are tied to the number of units produced, such as costs for raw materials, labor directly involved in manufacturing, and other costs that vary based on production volume. When production decreases, these costs also diminish, reflecting the direct relationship between output levels and these expenses.

In contrast, fixed costs do not fluctuate with production levels; they remain constant regardless of output. Operational costs can include both fixed and variable costs related to running a business and may not specifically indicate a direct correlation with production levels. Overhead generally refers to ongoing business expenses that are not directly tied to the production of goods but rather support the overall business operations, which can include both fixed and variable components. Therefore, the defining characteristic of variable costs is their direct link to production changes, making this the correct choice.