Reference no: EM131283156
A bank is considering two alternatives for handling a projected number of 6,000,000 service calls in total for the next 5 years. If the bank sets up its own service call center in the U.S., the fixed cost is estimated to be $3,000,000, which will be incurred in the first year; and the variable cost is calculated to be 20 cents per call. If the call service is outsourced to a foreign company, the unit charge would be 50 cents per call.
(a) What is the break-even number of service calls?
(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 12,000,000 for the next 5 years, would the bank change its decision in part (c)? If yes, explain with calculations.
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