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# Choosing the economical alternative

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Computers Inc is looking into three possible Customer Call Center services setups in different countries. The projected cost structure is as below:

Project Name Customer Call Center service in China Customer Call Center service in India Customer Call Center service in US
Cost of Machinery \$4,650,000 \$ 4,630,000 \$ 4,800,000
Training Costs \$150,000 \$ 120,000 -
Per customer revenue \$ 45 \$ 45 \$ 45
Per customer Variable cost of support \$ 21 \$ 20 \$ 22

The capacity of any of these call centers is 400,000 customers services per year. You are hired to analyze the projects and help select the project that takes the least time to break even. In the process of analyzing the projects also calculate the following:

a. BEP revenue. Decide which option should be selected using the BEP revenue model (decision based on total revenue).
b. BEP Quantity (customer numbers) for all the three proposals. Which project should be selected based on BEP Quantity.
c. Number of years to reach BEP for each project. Decide which project should be selected using the BEP years as standard.
d. If the company needs to support 260,000 customers every year, then which plan should be selected?

#### Solution Preview

a. BEP revenue. Decide which option should be selected using the BEP revenue model (decision based on total revenue).

Case A
Customer Call centre service in China
Fixed Cost=F=\$4650000+150000=\$4,800,000
Variable Cost per unit=V=\$21
Revenue per customer=P=\$45
CM Ratio=(P-V)/P=(45-21)/45=0.533333333
Break even revenue=F/CM ratio=4800000/.53333333=\$9,000,000

Case B
Customer Call centre service in India
Fixed Cost=F=\$4630000+120000=\$4,750,000
Variable Cost per unit=V=\$20
Revenue per customer=P=\$45
CM Ratio=(P-V)/P=(45-20)/45=0.555555556
Break even revenue=F/CM ratio=4750000/0.555555556=\$8550000

Case C
Customer Call centre service ...

#### Solution Summary

The solution depicts the steps to select one of given alternatives based upon BEP Revenue, BEP Quantity, Number of years and given customer base.

\$2.19