Assume that you are the Budget Director for the City of Hometown. You have been
ID: 2785833 • Letter: A
Question
Assume that you are the Budget Director for the City of Hometown. You have been provided with the following information about the City of Hometown’s ambulance service:
The City of Hometown currently uses tax revenues to finance the provision of ambulance services to city residents.
Currently, ambulance services are provided utilizing city staff.
The direct cost of providing ambulance services is $300,000 per year.
Approximately 2,000 people utilize the ambulance services per year (assume one trip per user).
The city has an indirect cost rate equal to $.40.
If the city decided to charge residents who utilize city ambulance services, how high would the charge need to be per trip in order to recover the full cost of providing the ambulance services? (Please show calculations on arrival to answer - I want to learn. Thank you!)
Explanation / Answer
Direct Cost of providing ambulance services = $ 300,000
Indirect Costs = 0.4* 300,000 = 120,000
Total Costs = $420,000
Number of trips per year = 2000
Charge needed per trip per user = 420,000/2000= $ 210 per user is needed to be charged to fully recover the cost of providing the ambulance services.