The City of Casa Cortez Uses an Internal Service Fund

Short Answer

The City of Casa Cortez uses an Internal Service Fund (ISF) to provide centralized printing services for all City agencies. City agencies are billed on a per-page basis (number of pages in a document times the number of documents printed). The City requires the ISF to develop its billing rate that it recovers all costs on the accrual basis of accounting, plus the cost of repaying a $400,000 start-up loan made by the City to the ISF. Compute the rate per page to be charged by the ISF, based on the following factors:
a. Start-up loan from City to ISF - $400,000 non-interest bearing loan, to be
repaid in equal payments over 10 years
b. Printing equipment - estimated to cost $300,000 and to have an average life of
10 years
c. Personnel costs - Estimated salaries of $500,000, plus contribution to Pension
Trust Fund of 10% of salaries
d. Paper- Opening inventory of $16,000; expected purchases of $72,000;
expected ending inventory of $12,000
e. Occupancy costs - Estimated at $50,000 per year
f. Expected number of pages to be printed - 20 million.