Producing or Outsourcing?
A bank is considering two alternatives for handling a projected total number of 18,000,000 service calls in the next 5 years. (You should treat those 5 years as one time period.) If the bank sets up its own service call center in the U.S., the fixed cost is estimated to be $3,500,000, and the variable cost is calculated to be 32 cents per call. If the call service is outsourced to a foreign company, the fixed cost would be $150,000, and the unit charge would be 48 cents per call.
(a) What is the break-even number of service calls? (rounded up to a whole number)
(b) Draw a diagram representing the in-house and outsourcing total costs which are functions of the number of service calls. Indicate the break-even number of service calls on the diagram.
(c) Would the bank set up its own service call center or outsource service call handlings? Explain your answer with calculations.
(d) If the projected number of service calls is 24,000,000 for the next 5 years, would the bank change its decision in part (c)? Again, explain with calculations.