Case 06-12 Outsourcing Services, Inc. Outsourcing Services, Inc. (OSI), a SEC registrant, provides a variety of EDP and payroll processing services to third parties. OSI recently has introduced a new service line to provide product help-line support services through customer service representatives (CSRs) who are employees of OSI. On January 1, 2004, OSI entered into a service contract with Company X. Pursuant to the terms of the contract, OSI’s CSRs will provide technical support for Company X’s products. The contract has an initial term of one year and is not cancelable by the customer. After the initial year, the contract is renewable at negotiated market rates. Prior to starting this new service line, OSI hired independent consultants …show more content…
Cost Deferral Policy In the past, OSI had not entered into transactions in which significant up-front costs were incurred in connection with the set-up and origination of its contracts, and, accordingly, OSI has not adopted a policy for accounting for these types of costs. OSI has indicated it plans to adopt a policy of deferring all up-front costs related to this contract including system set-up costs, sales commissions, and other contract acquisition costs. Management of OSI believes they will recover these costs and generate substantial profits through their call revenue (initial term and renewal periods), and the up-front costs incurred are a necessary investment in the contract. Based on customer lifting studies performed by an outside consultant and other industry statistics, OSI expects its contract with Company X to extend beyond the initial contract term and estimates a customer life of approximately 4.5 years. The total fees (set-up fee and call revenue) over the customer life are expected to exceed the direct costs of the contract, including amortization of the deferred costs before any indirect or Selling, General, and Administrative costs.
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Case 06-12: Outsourcing Services, Inc.
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Required: • Question 1: Is the accounting policy proposed by OSI to defer
Casturn hired a consulting company that possibly didn’t have the best interest of Casturn as its core motivation. The consulting company was paid on POTENTIAL cost savings and identification instead of a results oriented contract. Due to this structure, it became about quantity of parts that can be included in the bid instead of identifying the top say twenty percent of parts that, if managed well, could have yielded both companies a lucrative cost savings in the resourcing effort. In addition, the consulting company exited the process after the initial stages giving no one accountability to carry the resourcing effort to fruition.
Any employment contract providing for direct services to a Federal agency by an individual or individuals; or
All the FASB, SEC and EITF provide related information to the case. Despite we must consider the main data. Two contracts, one for
Topnotch Computers, the owner of a computer store, contracted with Repair Guru, the owner of a computer repair business, to allow Repair Guru to own and operate a computer repair service offered within the Topnotch Computers store. Topnotch Computers subsequently terminated the three -year contract with Repair Guru with thirty-five months remaining. Five months thereafter Repair Guru was able to contract with another firm, Best Computer, to provide its computer repair equipment for use by Best in its stores. Repair Guru then filed suit, claiming that it was entitled to conduct the computer repair operations for Topnotch Computers for an additional thirty-five months and that through such operations it would have earned a profit of $150,000. Decision for whom and in what amount and
services. He can also cancel the contract with the company at any time, and the company can
This paper was conducted as a Discussion Board Post assigned by Professor J. Reinke of: Liberty University, Graduate School of Business, Lynchburg, Virginia 24515.
This review will address several issues associated with the legal, business, and ethics related with the case. First, it will address the legality of the case by reviewing the difference between a written and oral contract, and the results of recovering fees. Next, this review will analyze the business effect of the case as it relates to the monetary bottom line and Chuckrow’s attempt to protect his profits. Subsequently, it will highlight the unethical behavior of Chuckrow and its potential effects on future subcontractors’ trust in
1. You recently retired from government contracting work and established a consulting company (fully consistent with government ethics laws and rules, of course) with the primary focus of advising potential government contractors and subcontractors. Mr. Johnny Jones, of The Johnny Jones Flooring and Construction Company has approached you with a question. Jones and his company are potential subcontractors (they, obviously, specialize in flooring) on a federal construction contract worth a little over two million dollars ($ 2,000,000.00) recently awarded to the Jimmy Smith Construction Company (Jimmy Smith, the prime contractor). Neither Johnny nor his company have ever been part of a government contract
Customers must use the internet to fill out an online form to address their complaints or service needs. These forms are processed by employees in your department. Currently the turnaround time on any given form is between four to eight hours. This creates a number of other customer complaints. Project Call Center is designed to reduce this turnaround time by 75% by creating and staffing a call center in Tampa. Building acquisition, building renovations, building fit out, IT system upgrades, and hiring and training of staff are estimated to cost $8.5 million dollars. This $8.5 million dollars can be paid evenly in any two quarters in the next year. In addition, seven new employees will need to be hired at $40,000 burdened labor costs per year to staff the call center. Management of this project could easily be done with the current in-house staff. Most of the work of this project would be outsourced and will have minimal impact on day-to-operations.
If a good cost-measurement system was set up, cost-plus contracts will demonstrate the advantages of cost-management better than fixed price contracts do. With a robust cost-measurement system, managers are able to know the real revenue drivers, to recognize the most valuable customers, and to offer more reasonable price bid. That is to say, cost-measurement system’s strength lies in differentiating clients’ value, projects’ value and operation processes’ value case by case. Under this circumstance, cost-plus contracts would surely dig more utilization and benefit more from such a system, because CitySoft would be able to charge different customers and projects for different prices, which is critical for increasing profitability.
The cost of implementation of the options: It is found in the survey that 20% customers had had repeat work. Considering 5% as redundant, the customer erosion could be as large as $4.37 million (Exhibit 2). Thus making the investment of $75000 is completely justified.
The advance technology division manufactures, develops, and sells specialized manufacturing equipment to include installation services which is sold on a time and materials basis. Title is also passed upon delivery. The sales contract with Sandham Inc. included certain provisions that made the collectibility of sales proceeds uncertain due to the obligation that the equipment had to meet Sandham’s requirement of compatibility with manufactured equipment from other companies which Wareham could not replicate during testing at their facilities. This contract also provides customer acceptance provision that grants Sandham a full refund if the product was not accepted within 120 days. Due to high development and manufacturing costs, these factors increases the risk that the company will take a significant loss in revenue if the product is rejected. For XL Semi, the provision outlining the cost of installation services which can vary from 1% to 3% of the total arrangement fee ignores the
4.What are some potential legal implications in the case? What should the utility do to rectify any wrongs in this situation?
This case was prepared by Professor Stephen E. Barndt of Pacific Lutheran University. This case was edited for 5MBP 9th Edition. Copyright C 1998 and 2000 by Stephen E. Barndt. This case was published in the Business Case [ourn Summer 1998. Vol. 1. No. t. pp. 53-{}9. Reprinted hy permission,
The use of an enterprise service provider for processing information systems applications such as payroll, human resources, or sales order taking is another excellent way for organizations to minimize cost while still experience the full benefit of an IT system. It is worth noting that while this is very cost effective and significantly reduces the load on an organization, outsourcing an organization's IT applications to an enterprise service provider for processing is a risky path to thread. Information privacy and integrity are at a very great risk here. An enterprise service provider or employers of the provider are capable of selling out the customers, employees and sales information of one organization to another. Employees of the Service providers could also include their name (create false employees) among the names of legitimate employees of the outsourced organization and masquerade as one of the real employees and receive pay every pay period. These and other privacy and integrity concern must be taken into serious consideration by organization outsourcing interested in outsourcing to an enterprise service