The city of Tribville recently centralized its mobile technology (phones, computers, and tablets) functions for the government in a single internal service fund. City officials want the fund to break even, so they need rates to be set appropriately. The combined data for the fund for the year are as follows (expressed in $000):
Salaries and wages.............................................................$191,600
Supplies:............................................................................17,400
Insurance (a two-year warranty coverage policy on equipment).............1,500
Depreciation on equipment:.......................................................7,000
Total annual costs...............................................................$217,500
The fund charges based on the number of mobile devices a department uses. The budget office estimates that there are a total of 15,000 mobile devices in operation across the government.
1. Based on the data present above, what amount would each user department be charged per phone.
2. The police department uses 5,000 of the phones, and the fire department uses 2,000 of the phones. How much would be the total annual charge to the fire department?
3. Suppose that of the $217,500 of annual costs, $45,000 are fixed and $172,500 are variable ($11.50 per phone). The police department decides that it needs only 3,000 phones.
a. What would be the amount that the internal service fund now charges per phone?
b. What would be the total amount now charged to the fire department, assuming that the fire department continues to use 2,000 phones?