Budget for Internal Service Fund
P7-8 (Budget for Internal service Fund)
The City of Eagle Rock uses an Internal Service Fund to provided 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 total cost that will be used to develop the cost per page. Assume that the equipment in the 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 purchase 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 salaried 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 was 10 years):$1,000,000.
P7-9 (Continuation of P7-8)
Assume the information presented in P7-7, except that the city did not contribute the equipment. Instead, the manager of the Internal Service Fund arranged to buy the equipment, paying for it over a period of 5 years. The terms of the acquisition required annual payments of $200,000 at the end of each year, with interest of 8% on the unpaid balance. The first payment was made, and it is in the second year of operation. Assume also that the fund has just enough cash on hand to finance its working capital needs, such as inventory requirements.
Using these assumptions, determine and explain the different calculation requirements.
Your submission must include the following:
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