B2W Flipbooks

Page | 40 Fulfi llment Costs (continued) > g. Direct materials (for example, supplies used in providing the promised services to a customer). Generally, these costs are also explicitly allowed in a contract and can be directly tied to a specifi c contract, thus meeting the criteria for capitalization. h. Allocation of costs that relate directly to the contract or to contract activities (for example, costs of contract management and supervision, insurance, and depreciation of tools and equipment used in fulfi lling the contract) are capitalizable. i. Costs that are explicitly chargeable to the customer under the contract. These are costs described in the contract that will be recoverable when they meet the appropriate specifi cations and are recoverable from the customer. For example, in many contracts overhead is a recoverable cost. Generally, there is a limit to the amount of the costs, which is described in the contract. j. Other costs that are incurred only because an entity entered into the contract (for example, payments to subcontractors). EXAMPLES OF COSTS THAT DO NOT MEET THE DEFINITION OF FULFILLMENT COSTS, AND THEREFORE WOULD BE EXPENSED AS INCURRED: a. General and administrative costs (unless those costs are explicitly chargeable to the customer under the contract). b. Costs of wasted materials, labor, or other resources to fulfi ll the contract that were not refl ected in the price of the contract. c. Costs that relate to satisfi ed performance obligations (or partially satisfi ed performance obligations) in the contract (that is, costs that relate to past performance). d. Costs for which an entity cannot distinguish whether the costs relate to unsatisfi ed performance obligations or to satisfi ed performance obligations (or partially satisfi ed performance obligations). Practical Application Note: The most common costs that will meet the requirement to be capitalized as fulfi llment costs are mobilization costs and bonding fees. Implementation Issues: Entities will need to develop a system of identifying these costs and establishing responsibility for transferring the costs to job costs as they are amortized to the performance obligation.

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