Activity Based costing focuses on alternative methods used to allocate Factory Overheads to jobs in the manufacturing operation. Three different methods were reviewed in this chapter, the Single Plantwide method, the Multiple Department method, and Activity-Based method for allocating factory overheads. One of the main factors used when making a decision about which method to apply is the Distortion caused by using simpler methods of allocation.

Discuss the following:

1. What is Distortion?

2. What impact can Distortion have on decision making for management. Use the Chapter 18 example to help illustrate your points if appropriate.