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The accounting department of a large credit card company has assembled the following data for its "Call Center" because it is considering outsourcing the center. Currently, 10,000 sq. ft of space is rented at $5 per sq ft per month and two hundred twenty employees at a yearly pay of $16,000 are employed. Utilities, including telephone service, cost approximately $10,000 a month. Overhead cost is allocated as 30% of the cost of labor per year. An outsourcing company has quoted a price of $5,500,000/year for this operation for the next five years. Is it better to outsource this function from an economic perspective?

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zainsubhani

Answer:

Total Cost=$5,296,000

Outsourcing company has quoted a price of $5,500,000/year which is greater than total operating cost which is $5,296,000 so outsourcing is not good option.Outsourcing will be expensive.

Explanation:

Lets find the operational cost per year:

Rent=Area*Cost per square feet*months

Rent=10,000*$5*12=$600,000

Labor cost=$16,000*220=$3,520,000

utilities=$10,000*12=$120,000

Overhead cost=Labor cost*30%

Overhead cost=$3,520,000*0.3

Overhead cost=$1,056,000

Total Cost=Rent+Labor cost+Overhead cost+utilities

Total Cost=$600,000+$3,520,000+$1,056,000+$120,000

Total Cost=$5,296,000

Outsourcing company has quoted a price of $5,500,000/year which is greater than total operating cost which is $5,296,000, so outsourcing is not good option.Outsourcing will be expensive.

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