Clay Company has decided to introduce a new product that can be manufactured by either a capital-intensive method or a labour-intensive method. The manufacturing method will not affect the quality of the product. The estimated manufacturing costs under the two methods are as follows:

Clay's market research department has recommended an introductory unit sales price of $32. The incremental selling expenses are estimated to be $502,000 annually, plus $2 for each unit sold, regardless of the manufacturing method.
Instructions
(a) Calculate the estimated break-even point in annual unit sales of the new product if Clay Company uses (1) the capital-intensive manufacturing method, or (2) the labour-intensive manufacturing method.
(b) Determine the annual unit sales volume at which there would be no difference between methods.
(c) Explain the circumstances under which Clay should use each of the two manufacturing methods.

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Direct materials Direct labour Variable overhead Fixed manufacturing costs Capital-Intensive $5 per unit $6 per unit $3 per unit $2,524,000 Labour-Intensive $5.50 per unit $8.00 per unit $4.50 per unit $1,550,000