A company incurs $3,600,000 of overhead each year in three departments: Processing, Packaging, and Testing. Traditionally, they have allocated this cost evenly based on total production (in barrels). In considering ABC, the company identifies that they perform 800 processing transactions, 200,000 packaging transactions, and 2,000 tests per year across the departments to produce 400,000 drums of Oil and 600,000 drums of Sludge. The following data are available:

Department	Transactions/Tests	Expected Cost
Processing	800	$1,500,000
Packaging	200,000	1,500,000
Testing	2,000	600,000

Planned transaction and test volume information for the two products is as follows:

Department	Oil	Sludge
Processing	300	500
Packaging	120,000	80,000
Testing	1,600	400

Compared to ABC, using the traditional approach

the company over allocated $502,500 to Sludge.

the company over allocated $780,000 to Sludge.

the company over allocated $502,500 to Oil.

the company over allocated $360,000 to Oil.