We all know that goods and service providers either manufacture or distribute products to consumers acting like an agent/broker.
We also know, Break-even Analysis tells us for how many units will the firm breaks even i.e., no profit or loss.
Let us assume the cost of buying is
P x Q
Let us assume the cost of making is
P= Price per unit
Q= Quantity in units
V= Variable cost per unit
F= Fixed costs
How we weigh Buy vs Make
Cancelling Q/Q = 1 from both sides, and sorting for Q later on
P= V + F
P - V = F
P - V / F = 1 (=Q)
Q = F / P - V
and this is same as Break-Even point in Units.
If the annual demand is less than Q, it is cheaper to buy from external vendors.
If the annual demand is more than Q, it is cheaper to manufacture inhouse.