Answer (C) is correct . Practical capacity is the maximum level at which output is produced efficiently, with an allowance for unavoidable interruptions, for example, for holidays and scheduled maintenance. Because this level will be higher than expected capacity, its use will ordinarily result in underapplied fixed factory overhead.
Answer (A) is incorrect because Excess capacity is unused capacity.
Answer (B) is incorrect because Manufacturing lead (cycle) time is the sum of setup time and manufacturing time for a customer order. It is a component of customer response time.
Answer (D) is incorrect because Theoretical capacity makes no allowance for unavoidable interruptions.
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