It' s not your fault, the problem is in the question and the answer.
Your ceiling and visibility are above minima' s, so decision height is not a factor.
All the weather and minima talk goes into the trash can.
Next, when there is an A/P malfunction, the malfunctioning A/P disconnects. In a fail-passive system that would mean that the pilot needs to take-over the landing if visibility permits or abort and GA. In a fail operational system, you can continue (because you have other A/P' s or guidance systems). I believe that the 40 feet loss would be for a failed, fail-passive system because in fail-operational you can continue without any altitude loss in case of a single A/P failure.
Your aircraft and pilot are certified for Cat 3 C but the A/P-aircraft combination can result in a 40ft altitude loss in case of malfunction of your A/P.
The lowest point on your approach where you can afford to lose your A/P is 40 feet above the point on the runway with the highest elevation (not the threshold, threshold elevation is irrelevant because its elevation is not necessarily higher than the elevation at TDZ).
To avoid being remembered as the unlucky dead pilot, you must disconnect your autopilot at 68 + 40 = 108 feet and continue your approach manually.
The 118 feet answer could mean that I am forgetting something but I think that it' s just a math error of the question bank editor.
A good thing to know is that there are approach precision categories (aircraft and ground ILS equipment precision/reliability requirements) and autoland capabilities (A/P precision requirements), both very distinct things.
An aircraft can be certified CAT 3 with manual landing capabilities (non-autoland) if the necessary equipment (aircraft/ground) is installed and crew properly trained.
In theory, you could take a Cessna 172 without A/P, put a Cat 3 C ILS system on it, add among other things a head-up display, flare and taxi guidance systems, anti-skid and extensive crew training and get approval for CAT 3 C manual landings.