When Nash Glassworks Company allocates fixed costs, management will select a capacity
level to use as the denominator volume. All of the following are appropriate as the capacity
level that approximates actual volume levels except

Answer (C) is correct.
Theoretical (ideal) capacity is the maximum capacity given continuous
operations with no holidays, downtime, etc. It assumes perfect efficiency
at all times. Consequently, it can never be attained and is not a
reasonable estimate of actual volume.