Break-Even and Make or Buy Decisions

Alternately, break-even analysis can be used as a make or buy and as a supplier comparison tool. Businesses need to determine whether or not to outsource manufacturing or other business processes based on production and facility capacity requirements. Break-even analysis can be useful in these decisions. In these types of scenarios, fixed and variable costs and expected production volumes are the focuses, not necessarily the price per unit. Break-even analysis is referred to as cost-volume analysis in such cases. 

Cost-volume analysis becomes useful when fixed and variable costs can be identified and there is a need to review costs based on production levels. The better option, make or buy, becomes apparent over a range of production requirements when using cost-volume analysis. 

The cost to produce items is a function of fixed and variable costs in addition to the number of units produced (Table 6.3). 

Total cost to produce = Fixed cost + (Variable cost x Total units 

the break-even point and total cost to make or buy are  

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