10. Arizona Communications contracted to set up a call center for the City of Phoenix. Under the terms of the contract, Arizona Communications will design and set-up a call center with the following costs: Design of call center Computers, servers, telephone equipment $275,000 Software $85,000 Installation and testing of equipment $15,000 Selling commission $25,000 Annual service contract $50,000 $10,000 In addition, Arizona Communications will maintain and service the equipment and software to ensure smooth operations of the call center for an annual fee of $90,000. Ownership of equipment installed remains with the City of Phoenix. The contract costs that should be capitalized is

10. Arizona Communications contracted to set up a call center for the City of Phoenix. Under the terms of the contract, Arizona Communications will design and set-up a call center with the following costs: Design of call center Computers, servers, telephone equipment $275,000 Software $85,000 Installation and testing of equipment $15,000 Selling commission $25,000 Annual service contract $50,000 $10,000 In addition, Arizona Communications will maintain and service the equipment and software to ensure smooth operations of the call center for an annual fee of $90,000. Ownership of equipment installed remains with the City of Phoenix. The contract costs that should be capitalized is

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Concept explainers

Contract Costing

Contract costing is about tracing particular costs related to a particular contract entered into with the customer. It is one of the forms of job order costing. It is useful in long-term contracts at the most. It is seen that substantial time is required for the completion of the contract which takes different accounting periods. Thus, it is very much helpful for recognizing the costs associated with it and accounting in their specific accounting periods.

Question

10. Arizona Communications contracted
set up a call center for the City of Phoenix. Under the
terms of the contract, Arizona Communications will design and set-up a call center with the
following costs:
Design of call center
Computers, servers, telephone equipment $275,000
Software $85,000
Installation and testing of equipment $15,000
Selling commission $25,000
Annual service contract $50,000
$10,000
In addition, Arizona Communications will maintain and service the equipment and
software to ensure smooth operations of the call center for an annual fee of $90,000. Ownership
of equipment installed remains with the City of Phoenix. The contract costs that should be
capitalized is

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