Carlton Company's existing cost system accumulates all overhead in a single cost pool and allocates it based on machine hours. Last year, overhead costs totaled $2,100,000 and Product #1 used 1,500 of the 30,000 total machine hours. An ABC study revealed that, of the total overhead cost of last year, $100,000 represented batch-level costs; these batch-level costs are driven by work orders; and a total of 1,000 work orders were issued, of which 30 were for Product #1.
Required:
With respect to batch-level costs only, calculate the existing cost system's direction and amount of cost distortion for Product #1.