ommunity Challenges, a nonprofit organization for physically and mentally challenged people, manufactures a variety of products in four plants located in California. The company is currently purchasing an electronic igniter from an outside supplier for $22 per unit. Because of supplier reliability problems, the company is considering producing the igniters internally in a currently idle manufacturing plant. Annual volume over the next five years is expected to total 600,000 units at variable manufacturing costs of $20 per unit. Management must hire a factory supervisor and assistant for a total annual salary and fringe benefit package of $30,000.

In addition, the company must acquire $150,000 of new equipment. The equipment has a five-year service life and a $30,000 salvage value, and will be depreciated by the straight-line method. Repairs and maintenance are expected to average $15,000 per year in years 3