Costing worked example

Make vs Buy with internal unit cost of 25 $ / unit: a worked example

Push internal unit cost up to 25 $ / unit and the picture changes. This example computes every intermediate figure at that operating point. Use when deciding whether to insource a part, outsource it, or keep current sourcing.

The inputs for this scenario

  • Internal unit cost: 25 $ / unit (raised for this scenario; the documented default is 9.8)
  • Supplier price: 10.65 $ / unit (unchanged)
  • Freight per unit: 0.42 $ / unit (unchanged)
  • Supplier quality loss: 0.18 $ / unit (unchanged)
  • Internal fixed overhead: 24,000 $ / yr (unchanged)
  • Annual volume: 45,000 units / yr (unchanged)

Working through the calculation

  • Applying the documented formula (Make annual cost = internal unit cost × volume + internal overhead) to the inputs above produces each figure below.
  • At this operating point the engine returns -642,750 $ / yr for savings to make, the number this scenario is built around.
  • At this operating point the engine returns 1,149,000 $ / yr for make cost.
  • At this operating point the engine returns 506,250 $ / yr for buy cost.
  • At this operating point the engine returns 11.25 $ / unit for buy unit cost.

How this compares with the baseline

  • Against the tool's baseline example, where internal unit cost sits at 9.8 $ / unit and the headline result is 41,250 $ / yr, this scenario comes in 1,658% below the baseline at -642,750 $ / yr.
  • It computes the total annual make cost (unit cost times volume plus fixed overhead) versus the total annual buy cost (supplier price plus freight plus quality loss, times volume) and reports the savings. The value of this scenario is the size of the gap it exposes: that gap, priced out over a year, is the budget you can justify spending to close it.

Results at a glance

  • Savings to make: -642,750 $ / yr (headline result)
  • Make cost: 1,149,000 $ / yr
  • Buy cost: 506,250 $ / yr
  • Buy unit cost: 11.25 $ / unit

Run it with your numbers

  • Every input above is editable in the live Make vs Buy calculator, which recalculates instantly and can be shared with the inputs intact.

Last reviewed 2026-05-12.