At the Pinnacle Enterprise, a UK-based consulting firm, management was discussing the potential of outsourcing the process of handling customer calls and complaints to Relax, an international provider of call center services. Having a team of call center agents was an expensive activity especially due to an increase in employee wages. Based upon initial study and negotiations, Relax will charge £0.20 per call, and Relax will want £500,000 per year to cover equipment and overhead costs associated with the contract.
Currently, Pinnacle is spending £0.15 for handling a call. It is yet to develop an estimate for the annual overhead and fixed costs associated with handling the calls. These costs include supervision, administrative support, maintenance, equipment depreciation, and overhead. If Pinnacle must handle 125,000 calls per year, how high must those fixed costs be before it would pay to use Relax?