Elbow Industries, Inc., a manufacturer, converts unfinished pipe into a usable state by perforating and threading it for use in plumbing before selling it to customers. The company typically manufactures 100,000 units of standard finished pipe per year and uses that amount for its per-unit cost estimates. The company received a one-time order for 50 units of custom finished pipe. The company can fill this order by manufacturing unfinished pipe in-house or by purchasing finished pipe. The controller provided cost information related to the custom order in the exhibit above. The controller also indicated: • Three years ago, Elbow purchased 200 units of unfinished pipe at a cost of $80 per unit. After purchasing the unfinished pipe, the company determined that it would not be able to resell it or use it in the manufacturing process. Two years ago the material was determined to be obsolete, with no net realizable value, and was written down to zero on the books. The company can use 50 units of this obsolete unfinished pipe to fill the custom order, if manufactured in- house. If the company finishes the pipe in-house for the custom order, it will use the same facility and machinery as the standard products manufactured, with no additional capacity required. Other than the costs detailed in the exhibit, there are no other costs associated with manufacturing the finished pipe inhouse for the custom order.
If the company purchases finished pipe for the custom order, it will need to perform an in-house inspection for quality control. No inspection is necessary for units that are finished in-house.
Task : Calculate the cost of manufacturing the units of finished pipe in-house and the cost of buying the units of finished pipe in order to determine how best to fill this custom order.