EcoFabrics has budgeted overhead costs of $945,000. It has allocated overhead on a plantwide basis to its two products (wool and cotton) using direct labor hours which are estimated to be 450,000 for the current year. The company has decided to experiment with activity-based costing and has created two activity cost pools and related activity cost drivers. These two cost pools are cutting (cost driver is machine hours) and design (cost driver is number of setups). Overhead allocated to the cutting cost pool is $360,000, and $585,000 is allocated to the design cost pool. Additional information related to these pools is as follows.

Machine hours wool: 100,000 Number of set ups wool: 1,000

Machine hours cotton: 100,000 Number of set ups cotton: 500

Machine hours total: 200,000 Number of set ups total: 1,500

The amount of overhead allocated to the wool product line and the cotton product line using activity-based costing & traditional approach is as follows:

ABC wool: $570,000 Traditional wool:$472,500

ABC cotton: $375,000 Traditional cotton: $472,500

1.How does allocation using traditional approach compare with the amount allocated using ABC?