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).

Transcribed Image Text:

A Costs driven by number of students Acquisitions Costs driven by number of credit hours 2 Library management 3 4 5 6 7 8 Building maintenance 9 Library staff 10 Utilities and supplies 11 12 Computer support $ 475,000 650,000 $ 1,125,000 65,000 243,000 389,000 178,000 $ 875,000 13 14 15 Data on students and credit hours 16 Number of students 17 Number of credit hours 18 Undergraduate 600 8,500 Graduate 900 25,500