Question: (Budget for an Internal Service Fund) The City of Oscar uses an Internal Service Fund to provide printing services to its various departments. It bills departments on the basis of an estimated rate per page of printed material, computed on the accrual basis of accounting. From the following information, compute the amount per page that the fund will charge during 2013. Based on past experience, the fund estimates that it will print 1,000,000 pages during the year. (Assume that the equipment in item 6 was contributed by the city and that the pricing objective was to recoup the cost of equipment in the rate charged over the life of the equipment.)
1. Inventory of paper on hand at beginning of year: $10,000
2. Estimated paper purchases during the year: $60,000.
3. Estimated amount of paper to be consumed during the year: $55,000
4. Estimated salaries to be paid during the year: $255,000
5. Estimated salaries earned during the year, including both what was paid and what was owed at year end: $265,000
6. Cost of equipment on hand at beginning of the year (estimated life of 10 years): $1,000,000