How to calculate Make-or-Buy decisions in Excel?
Make a kind of accessory by yourself, or buy it from other manufactories? Normally we have to compare costs of making and buying before making decisions. Here I will guide you to process Make vs Buy analysis, and make the make-or-buy decision in Excel easily.
To calculate or evaluate the make-or-buy decision in Excel, you can do as following:
Step 1: Prepare a table as the following screen shot shown, and enter your data into this table.
Step 2: Calculate the making cost and total buying cost:
(1) In Cell D3 enter =A3*C3+B3, and drag the Fill Handle to the range you need. In Our case, we drag the Fill Handle to the Range D4:D12;
(2) In Cell E3 enter =D3/A3, and drag the Fill Handle to the range you need. In Our case, we drag the Fill Handle to the Range E4:E12;
(3) In Cell G3 enter =F3*A3, and drag the Fill Handle to the range you need. In Our case, we drag the Fill Handle to the Range G4:G12.
Up to now, we have finished the Make VS Buy table in Excel.
Step 3: Then we will insert a scatter chart.
(1) Holding the Ctrl key, and select the Units column (Range A2:A12), Unit Cost of Making column (Range E2:E12), and Unit Cost of Buying column (Range F2:F12);
(2) Click the Insert > Scatter button (or Insert Scatter (X,Y) or Buddle Chart button) > Scatter with Smooth Lines. See screen shot below:
Step 4: Format the vertical axis with right clicking the vertical axis and selecting the Format Axis from the right-clicking menu.
Step 5: Change the vertical axis options as following:
- In Excel 2013' Format Axis pane, enter min bound in the Minimum box, and enter max bound in the Maximum box;
- In Excel 2007 and 2010's Format Axis dialog box, check the Fixed option behind the Minimum and enter min bound into following box; check the Fixed option behind the Maximum and enter max bound into following box; then close the dialog box. See screen shot below:
Excel 2013 and higher versions:
Step 6: Change the horizontal axis option with the same method we introduced in Step 5.
Step 7: Keep selecting the chart, and then click the Layout > Chart Title > Above Chart, and then type a chart name.
Note: In Excel 2013, the chart name is added above the chart by default. You just need to change the chart name as you need.
Step 8: Change the position of legends with clicking the Layout > Legend > Show Legend at Bottom.
Note: In Excel 2013, the legend is added at bottom by default.
Up to present, we have created the Make vs Buy table and Make vs Buy chart already. And we can make make-vs-buy decision easily with the chart.
In our case, if we need less than 1050 units, it's economic to buy the accessory; if we need more than 1050 units, making the accessory will cost less; if we need 700 units or 1050 units, making costs the same money as buying. See screen shot below:
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