Overhead costs in Logan Company totaled $8,100,000 last year, and Product RK used 600 direct labor hours out of the company's total of 50,000 direct labor hours used. All overhead costs are accumulated in a single cost pool and allocated based on direct labor hours.
A consulting firm has just completed an ABC study for the company. The ABC study showed that, of the last year's total overhead cost, $2,000,000 represented the costs of design changes. The activity driver selected for design change costs is the number of design hours. A total of 6,000 hours were spent on design changes last year, of which 132 hours were spent making a total of three changes in the design of Product RK.
Required:
Considering only the costs of design changes, calculate the direction and amount of cost distortion for Product RK in the original cost system.