5 VM for each dev ? That sounds a bit strange given that you only have 2 prod VMs.

Ignoring the weird dev VMs. The setup you have at the moment is tiny so cost isn't the issue here. In terms of dedicated you'll likely have to buy that for a least a year and so I don't think fully dedicated is the correct move here.

There are smaller cloud providers that'll give you those 2 prod VMs at a fraction of the Azure price but again price really isn't much of a factor here so I think staying on Azure is the right move.

I think personally you should look at moving those 5 dev VM's locally i.e. not in the cloud. It's really strange to have that many dev VM's.