Stretch Inc
Subject:AccountingPrice:2.86 Bought5
Stretch Inc. manufactures the elastic band that becomes the waistline in a pair of yoga pants. The manufacturing costs for the elastic band alone are presented below. Stretch Inc. receives an offer from Namaste to supply the elastic band for $10 each. If Stretch purchases the elastic band from Namaste, the elastic band manufacturing facility will remain idle. 1) an analysis to determine whether Stretch should purchase the elastic band from Namaste. 2) Then explain any non-financial factors that might influence their decision.
Direct Materials: $3
Direct Labor: 2
Variable Manufacturing Overhead: 3
Variable Selling Expense: 1
Fixed Manufacturing Overhead: 8
Total Cost: $17
Analysis Make Buy
Purchase Price:
Direct Materials:
Direct Labor:
Variable Manufacturing Overhead:
Variable Selling Expense:
Fixed Manufacturing Overhead:
Total Cost:
Should the company make or buy the elastic band?
Explain any non-financial factors that might influence the decision in this case.
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Since the per unit cost of making the elastic bank is lower than buying it, hence, Stretch manufacturer should make its own band instead of buying it and be able to save $2 per unit.
Non-financial factors which might influence the decision are as follows:
1. Quality of the product: If product supplied is of better quality and more reliable thus, manufacturers can consider of buying it instead of manufacturing itself.
2. Reputation of supplier/ Competitiveness of product: organization can think of buying product from outside or third party if he is well known for its product since it will lead to increase in the brand value of the manufactured goods or product.
3. Meeting out market demand: organization should opt for buying product from outside if it cannot meet market demands from self-manufactured products.
4. Ensuring proper utilization of available facility.
5. Delivery on time and to the warehouse.
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