Example: Make-or-Buy analysis- Mary and Sue, have decided to open a bagel shop. Their first decision is whether they should make the bagels on-site or buy the bagels from a local bakery. If they buy from the local bakery they will need airtight containers at a fixed cost of $1000 annually. They can buy the bagels for $0.40 each. If they make the bagels in-house they will need a small kitchen at a fixed cost of $15,000 annually. It will cost them $0.15 per bagel to make. They believe they will sell 60,000 bagels.

1. Mary and Sue wants to know if they should make or buy the bagels.

FCBuy + (VCBuy x Q) = $1,000 + ($0.40 x 60,000) = $25,000

FCMake + (VCMake x Q) = $15,000 + ($0.15 x 60K) = $24,000

2. Indifference Point

FCBuy + (VCBuy x Q) = FCMake + (VCMake x Q)

n$1,000 + ($0.40 x Q) = $15,000 + ($0.15 x Q)

Q = 56,000 bagels

Since the costs are equal at 56,000 bagels and Mary and Sue expect to use 60,000 bagels, they should make the bagels in-house

THE PART THAT I DONT UNDERSTAND IS THE INDIFFERENCE POINT. CAN YOU PLEASE BREAK THAT PART DOWN INTO MORE DETAIL PLEASE...