Cost Allocation with Cost Flow Diagram The library at Pacific Business School (PBS) serves both undergraduate and graduate students. The dean of PBS is interested in evaluating the profitability of the degree programs and has asked the head of the library, Rex Gilmore, to allocate the annual library cost of $2 million to the two programs.
Rex believes that two cost drivers explain most of the costs: number of students and credit
hours. Using information from a previous analysis, he split the annual library budget as follows:

Required
a. Allocate the cost of the library to the two programs (undergraduate and graduate).
b. Draw a cost flow diagram to illustrate your answer to requirement (a).

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Costs driven by number of students Library management Acquisitions Costs driven by number of credit hours Computer support $ 475,000 650,000 $1,125,000 $ 65,000 Building maintenance Library staff Utilities and supplies Data on students and credit hours at PBS follow: 243,000 389,000 178,000 $ 875,000 Undergraduate Graduate Number of students 600 900 Number of credit hours 8,500 25,500