Question

Arlington Town uses an Internal Service Fund to account for its motor pool activities. Based on the following information, calculate the price per trip that the Motor Pool Internal Service Fund needs to charge users during calendar year 2018 to break even:
Automobiles:
The Motor Pool uses two 6-passenger vans, each costing $45,000 and each estimated to have a 5-year life when they were acquired in 2017.
Driver salaries:
The Motor Pool has a driver-administrator, who earns $45,000 a year, and a driver, who earns $35,000. The town uses a rate of 30 percent (to cover benefits, including pensions) for planning purposes.
Insurance:
In 2017, the town purchased a 3-year automobile accident policy at a cost of $6,000.
Fuel and maintenance costs:
Based on experience, the driver-administrator estimates that total fuel and maintenance costs for the year will be $8,000.
Billing units:
To simplify its record keeping, the Motor Pool charges a fixed price per trip. Arlington’s budget office estimates it will provide 800 trips to the town’s departments in 2018.

Answer 1

Solution :

The price per trip is given as $=\frac{\text{total cost}}{\text{No. of trips}}$

The number of trips is given as = 800

The total cost calculations are as follows :

Particulars                                             Amount            Calculations

Annual cost for automobile van             $ 18,000           $\frac{45000 \times 2}{5}$

Cost of driver salary                               $ 80,000        45000 + 35000

Cost of fringe benefits                           $ 24,000         80000 x 30%

Cost of insurance                                  $ 2,000                 $\frac{6000}{3 \text{ years}}$

Fuel and maintenance                           $ 8,000

Total cost                                              $ 132,000.00

Therefore the price per trip $=\frac{\ 132,000}{800 \text{ trips}}$

                                          $= \ 165 \text{ per trip}$