KEVOS® WORKOS · Decide
Make or Buy (detailed cost comparison)
Should you manufacture this internally or buy it from a supplier?
A detailed annual make-or-buy comparison that separates material, labour, variable overhead, freight and fixed costs, with a cost build-up table.
Open the calculatorRuns in your browser. No account needed.
How this tool works
Inputs, units and where to find them
| Input | Unit | Typical source |
|---|---|---|
| Annual quantity | units | Annual demand forecast for the part |
| Make material / unit | $/unit | Bill of materials cost per unit from the costing system |
| Make labour / unit | $/unit | Standard labour time × loaded labour rate |
| Make variable overhead / unit | $/unit | Variable overhead rate from finance (energy, consumables per unit) |
| Annual make fixed cost | $ | Annual fixed costs that would stop if you bought (avoidable fixed cost) |
| Supplier price / unit | $/unit | Supplier quotation at the forecast volume |
| Freight / landed cost / unit | $/unit | Freight, duty, packaging and inspection per unit (landed cost) |
| Annual supplier/setup cost | $ | Annual supplier set-up, tooling amortisation or account costs |
Method and formulas
- Make variable = material + labour + variable overhead per unit
- Buy variable = supplier price + freight and landed cost per unit
- Annual cost = quantity × variable cost + annual fixed cost (each option)
- Crossover = (make fixed − supplier fixed) ÷ (buy variable − make variable)
Limitations
- Assumes costs are linear with volume
- Does not value strategic capability, IP or supply-chain risk
- Excludes inventory carrying cost differences unless included in landed cost
Typical uses
- Sourcing decisions for production parts
- Preparing a make-or-buy case for management
- Insourcing reviews when volumes grow
Who it is for
- Manufacturing engineers
- Cost accountants
- Supply chain and procurement managers
What you get
- MAKE or BUY with the annual difference
- Cost per unit of each option
- Annual cost build-up table
- Crossover volume
Interpreting the result
- Only avoidable fixed costs belong in the make option
- If the decision flips within your forecast range, gather better data before committing
- Check the sensitivity table for the input with the most leverage
References
- Horngren, Datar and Rajan, Cost Accounting: A Managerial Emphasis (Pearson), relevant costing chapter
WORKOS tools are screening and decision-support utilities. Verify important financial, engineering, safety, legal or operational decisions using appropriate professional standards and your organisation’s approved data.
