Make vs Buy Cost Calculator

How the make vs buy cost calculator works

The model compares the cost of meeting one period of demand in two ways. Make cost = entered make fixed cost + units × make variable unit cost. Buy cost = entered buy fixed cost + units × buy variable unit cost. Each extended total rounds half-up to cents. The same specification and whole-unit demand apply to both options.

All entered fixed amounts apply even at zero units. Include the relevant commitments for each scenario consistently. A fixed overhead allocation that continues after outsourcing does not disappear merely because production stops; include that continuing cost appropriately or exclude the same unavoidable cost from both sides when comparing only relevant differences.

The continuous equal-cost volume is (buy fixed cost − make fixed cost) ÷ (make unit cost − buy unit cost). Only a nonnegative intersection is shown. Equal variable costs have no unique intersection, and a displayed fractional crossover is not an exact whole-unit winning threshold. The table compares half, current and double demand using unchanged cost terms.

The lower entered cost is one part of a sourcing decision. This model does not check production capacity, capital funding, supplier reliability, lead times, intellectual property, quality, working capital or the contribution forgone by occupying scarce capacity. Add avoidable costs and relevant opportunity costs to your scenarios without counting sunk or unavoidable costs as savings.

Worked example

For 1,000 units, making costs $5,000 fixed plus $8 per unit, or $13,000. Buying costs $500 fixed plus $14 per unit, or $14,500. Making is $1,500 cheaper at this volume. The unrounded cost lines meet at 750 units, where both cost $11,000. The example assumes both options meet the same requirements and that the entered fixed costs apply throughout the period.

Sources and assumptions

The source material explains the underlying calculation or pricing structure. Entered prices, costs, schedules and scenario choices are your assumptions; this tool does not obtain supplier quotes or predict actual results.

• OpenStax: relevant costs in a make-or-buy decision