Which capacity level, when used as the denominator for setting a fixed overhead rate, best highlights the cost of unused capacity that management could otherwise deploy?

Correct answer: B) Practical capacity

Explanation

Practical capacity is the maximum output achievable allowing for unavoidable interruptions such as maintenance. Using it as the denominator keeps product costs from being inflated by idle capacity and makes the cost of unused capacity visible. Normal and budgeted utilization spread the cost of idle capacity over the units produced.