You are the owner of a bike shop that specializes in custom-built bikes. Your Sales Manager and Chief Financial Officer (CFO) want to talk to you about switching product costing allocation methods. The Sales Manager recommends switching from a single plant-wide factory overhead rate to multiple production department overhead rate. Your CFO recommends activity-based costing with 4 cost pools.

• What are the pros/cons of the three different cost allocation methods?
• What are the possible product cost distortions under each cost allocation method?
• What recommendation will you implement and why?