As night fell, the crew upon the stricken ship knew that for most it would be their last night. Captain Lindemann allowed his men a free hand to whatever food and drink they could consume. For others he set the task of building a fake funnel, with the idea that when planted on top of the ship it would alter its silhouette and trick the British into thinking that the ship was not the Bismarck but another vessel. His men must have realised the absurdity of the captain’s plan but, nonetheless, thankful for the distraction, threw themselves into the task with gusto.

http://www.historyinanhour.com/2011/05/27/sink-the-bismarck-summary/

From the text it appears the effort was to divert the crew's minds from the fact they had been spotted and were being chased. It was after Lutjen's 'victory or death' speech on May 25, Lindemann and the officers then sought ways to raise morale and keep the crew busy so they devised the dummy funnel scheme. It worked, helped by the realisation that they had broken contact with the British, and the Chief Engineering Officer Lieutenant-Commander Walter Lehmann's order to draw cigars to smoke in the dummy stack was part of this jesting.

http://www.shipbucket.com/forums/viewtopic.php?f=12&t=5102&start=140#p125896