Hydro Systems Engineering Associates, Inc. provides consulting services to city water authorities. The consulting firm’s contribution-margin ratio is 20 percent, and its annual fixed expenses are $120,000. The firm’s income-tax rate is 40 percent.Required:1. Calculate the firm’s break-even volume of service revenue.2. How much before-tax income must the firm earn to make an after-tax net income of $48,000?3. What level of revenue for consulting services must the firm generate to earn an after-tax net income of $48,000?4. Suppose the firm’s income-tax rate rises to 45 percent. Explain what will happen to the break-even level of consulting service revenue.
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Hydro Systems Engineering Associates, Inc. provides consulting services to city water authorities. The consulting firm’s contribution-margin ratio is 20 percent, and its annual fixed expenses are $120,000. The firm’s income-tax rate is 40 percent.
Required:
1. Calculate the firm’s break-even volume of service revenue.
2. How much before-tax income must the firm earn to make an after-tax net income of $48,000?
3. What level of revenue for consulting services must the firm generate to earn an after-tax net income of $48,000?
4. Suppose the firm’s income-tax rate rises to 45 percent. Explain what will happen to the break-even level of consulting service revenue.
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