Neither Paper nor Plastic Company manufactures high-end, reusable shopping bags in a labor intensive production environment. The company uses a traditional normal costing system to allocate manufacturing overhead to production on the basis of direct labor hours logged. For the upcoming year, the company estimates it will incur $45,000 of total manufacturing overhead costs.

Management is concerned that the current sales prices for its two product lines, Nylon and Canvas, are no longer competitive. In an effort to improve costing accuracy, and as a result pricing, management has decided to analyze manufacturing overhead using activity based costing. Management has identified two activities that, when combined, generate 65% of the total budgeted manufacturing overhead costs. The two activities are product movement and inspection. The product movement overhead is driven by the number of times the products are moved in batches on the factory floor and accounts for 45% of the total budgeted manufacturing overhead. The inspection overhead is driven by inspection hours logged and accounts for 20% of the total budgeted manufacturing overhead. The remaining budgeted manufacturing overhead is considered general factory overhead costs and will continue to be allocated to the product lines based on direct labor hours logged.

The projected production levels for the upcoming year are 3,000 Nylon bags and 1,500 Canvas bags. In addition, the following input ratios are expected for the product lines:

	Nylon	Canvas
Product Movement	100 units per move	150 units per move
Inspection Hours	0.1 hours per unit	0.1 hours per unit
Direct Labor Hours	0.5 hours per unit	2.0 hours per unit

Which of the following statements is incorrect with regard to the above information?

A. Under activity based costing, 25% of the product movement manufacturing overhead costs will be allocated to the Canvas product line.

B. The per unit cost distortion for the Nylon product line is not equal to the per unit cost distortion for the Canvas product line.

C. The traditional costing system is overcosting the Nylon product line by $11,437.50 in total.

D. No cost distortion exists for the slice of total manufacturing overhead that is considered general factory overhead costs.

E. Under activity based costing, the Nylon product line consumes two times the inspection manufacturing overhead costs as the Canvas product line.