Outsourcing and ethics Hollenberry, Inc., is a successful mail-order catalog business with customers worldwide. The company’s headquarters is in a small town some distance from any major metropolitan area. Sales have grown steadily over the years, and the call center facilities are currently inadequate for the sales volume. Management is deciding whether to outsource the call center operations to a company specializing in such operations. If the call center is outsourced, most of the current employees would lose their jobs because they do not wish to relocate to the new call center location, close to a major metropolitan area. Many of the employees have been with Hollenberry for more than 20 years. Regardless of where the call center is located, customers will call a toll-free phone number. If the call center is outsourced, however, more multilingual operators would be available. Hollenberry has identified the following costs of operating the call center in-house:

Labor ............$650,000

Building rent.......... 60,000

Phone charges........... 35,000

Other overhead costs....... 42,000

If the call center is outsourced, the related office equipment would be sold to the new call center operations for $20,000. The equipment was originally purchased at a cost of $100,000. The building will no longer be rented, and call center employees will have the opportunity to transfer to the outside call center, in which case their salaries will be paid by the outside call center. The other overhead costs are associated with maintaining the building and office equipment for the current call center.

If Hollenberry outsources the call center and the same number and pattern of calls occur next year, Hollenberry will pay the new call center firm $700,000 for the year.

Required

(a) What costs are relevant to the decision to outsource the call center?

(b) What qualitative factors are important in this decision?

(c) What should Hollenberry do? Provide reasons for your recommendation.