06-12c Outsourcing Services Inc

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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 to assist in the evaluation and study of this industry. It was determined that for similar companies providing similar services, the average customer life, including renewals, is approximately 4.5 years. Direct and incremental third-party costs incurred by OSI in Expense ASC 310-20-25-26 (Use connection with this study were $25,000. ASC as an Analogy) Since the products of Company X are unique to Company X, each CSR will undergo an extensive on-the-job training regimen to ensure they are trained adequately to provide technical support. OSI is responsible for providing the required training to their CSRs. The primary nature of on-going training will be on the job by observing and shadowing an existing CSR for a one-month period. The cost of this training, in terms of duplicative effort and “downtime,” is estimated to be $65,000. Expense-ASC 720-15-55-3b In addition to the costs of the contract discussed above, OSI will incur the following Deferred ASC additional costs associated with this contract: 605-20-25-4 Sales Commissions $250,000 Corporate costs based on number of hours corporate personnel dedicated to contract negotiation $50,000 Direct costs to a third party to configure OSI systems, transfer the customer’s data, and...
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