Here is my explanation of the blacksmith shop in a list:
1.This is a business run by skilled professionals, it costs money to get them to do their work or to use their resources. You can save on labor costs by having a follower learn this craft, but you must still pay for use of their materials and crafting equipment.
-note: a follower will have to spend a period of time learning this trade before being able to practice it.
2.If you bring in your own materials to be worked, this will further reduce the cost of having equipment made. The highest grade of materials to be supplied by the blacksmith shop is steel, anything stronger will need to be obtained in other ways.
3.You may pay extra for having equipment custom ordered. While it costs more money and may take a longer time to complete, it will be a special piece of equipment made specially for you. Bringing in rare materials to be forged will be a "Custom Order."
-note: a follower who is working at the blacksmith's shop will need to have done work with many other pieces of equipment before being able to work custom orders, it is best to leave this to professionals.
4.The cost of various equipment purchases is based on a variety of factors, most important of which being exactly what material is being used in the item's construction. Other factors may include the shape and size of the desired product. Most times, there will be a priced list of available equipment, but these factors will mainly apply to custom orders.