Using the information in the scenario presented below, what problems can you see with making these decisions? Spend time here discussing some of the issues related to internal service funds.

A city accounts for a vehicle repair service in an internal service fund and bills departments at full cost. The departments fixed costs are $80,000 per month; its variable costs are $40 per hour. On average it provides 4,000 hours of service per month.

• Fixed costs: $ 80,000
• Variable costs: 160,000 (4,000 x $40)
• Total cost: 240,000
• No. of hours: 4,000
• Cost per hour: 60

The police department determines that it is economically justifiable to repair a car if it can be fixed for $3,000 or less. The repair service estimates that the job will take 60 hours.