Question

Sounds, Inc., is a company that produces sound systems for car stereos. It is considering outsourcing its customer service operation. It has a bid of $4 per call from Callers Service Company. Its current costs to service customers are estimated to be $3 per call, but it could use the idle space currently occupied by the customer service operation to earn an additional $24,000 per year. Sounds, Inc., currently receives about 1,500 customer calls per month.
a. Should Sounds, Inc., outsource its customer service operation?
b. What nonfinancial factors should be considered?

Answer 1

Answer:

a)

Sounds Inc should outsource the call center service because it is cheaper and will help to save cost worth (78,000- 72000)= $6,000

b)

Financial factors. See notes below

Explanation:

To determine whether or not to  outsource the function, we will compare the cost of the internal department to the cost of the external supplier. And go for the option wit the lower cost

Internal cost

Running cost (3×1,500×12)                  54000

Opportunity cost                               = 24,000

Total cost                                              78000

External cost (4×  1500×12)                  72000

Sounds Inc should outsource the call center service because it is cheaper and will help to save cost worth (78,000- 72000)= $6,000

Financial factors

Service Quality. Sound Inc need to be sure that the quality of service to be provided wont be undermined.

Poaching : Also, another risk area is the possibility of the external provider converting sounds customers to competitor

Data Privacy and protection: is there a guarantee that the contractor would not divulge or abuse the privileged information of Client's customers