? is based on the level of capacity utilization that satisfies average customer demand over periods…

➤ When should a business choose practical capacity instead of theoretical capacity?
Choose practical capacity for production planning, pricing, and standard costing that span months or years. It matches normal operating patterns and common disruptions. Use theoretical capacity only for new plant design, stress testing, or one-off maximum output estimates. Practical metrics work best for contracts, routine scheduling, and performance benchmarks.